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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to .
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Commission File Number: 1-12478 (Irvine Apartment Communities, Inc.)
0-22569 (Irvine Apartment Communities, L.P.)
IRVINE APARTMENT COMMUNITIES, INC.
IRVINE APARTMENT COMMUNITIES, L.P.
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(Exact Name of Registrant as Specified in Its Charter)
Maryland 33-0698698
Delaware 33-0587829
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(State of Incorporation) (I.R.S. Employer Identification Number)
550 Newport Center Drive, Suite 300, Newport Beach, California 92660
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(Address of principal executive offices)
Registrants' telephone number, including area code: (714) 720-5500
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Securities registered pursuant to Section 12(b) of the Act:
Title of Name of each exchange
each class on which registered:
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Common Stock, par value $.01 per share New York Stock Exchange, Inc.;
(Irvine Apartment Communities, Inc.) Pacific Exchange, Inc.
Number of shares of common stock outstanding as of December 31, 1997: 19,901,134
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Securities registered pursuant to Section 12(g) of the Act:
Title of each class:
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Units of General Partnership Interest
(Irvine Apartment Communities, L.P.)
Number of units outstanding as of December 31, 1997: 19,901,134
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Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter time as required), and
(2) has been subject to such filing requirements for the past 90 days:
Irvine Apartment Communities, Inc. Yes X No
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Irvine Apartment Communities, L.P. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 28, 1998 was $603,535,000 assuming that all
officers and directors of the Company are affiliates.
Documents incorporated by reference:
Portions of the annual report to shareholders of Irvine Apartment
Communities, Inc. for the year ended December 31, 1997 are incorporated by
reference into Parts I and II of this Form 10-K.
Portions of the proxy statement for the Irvine Apartment Communities, Inc.'s
annual shareholders' meeting to be held May 7, 1998 are incorporated by
reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
ORGANIZATION AND GENERAL BUSINESS DESCRIPTION
Irvine Apartment Communities, Inc. ("IAC"), a Maryland corporation,
operates as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended. At December 31, 1997, IAC had a 44.4% general
partnership interest in and was the sole managing general partner of Irvine
Apartment Communities, L.P. (the "Operating Partnership") which began operations
as of December 8, 1993, the date of IAC's initial public offering of common
stock (the "Initial Public Offering"). At December 31, 1997, The Irvine Company
and certain of its affiliates had a 55.4% limited partnership interest in the
Operating Partnership. As used herein, unless the context otherwise requires,
the term "Company" includes Irvine Apartment Communities, Inc. and Irvine
Apartment Communities, L.P.
IAC is a self-administered equity REIT engaged in the operation and
development of apartment communities in Orange County, California and, since
January 1997, in Northern California's Silicon Valley and in northern coastal
markets of San Diego County. The Company's intent is to create new market
positions in California which possess rental demographic and economic growth
prospects similar to those on the Irvine Ranch. As of December 31, 1997, the
Operating Partnership owned and operated 59 properties (the "Properties")
containing 15,136 operating apartment units and had 2,112 units under
construction or development. Until July 2020, the Company has the exclusive
right, but not the obligation, to acquire land from The Irvine Company for
development of additional apartment communities on the Irvine Ranch.
IAC Capital Trust, a Delaware business trust (the "Trust") was formed
on October 31, 1997. The Trust is a limited purpose financing vehicle
established by the Company. The Trust exists for the sole purpose of issuing its
preferred securities and investing the proceeds thereof in Preferred Limited
Partner Units of the Operating Partnership. In January 1998, the Trust issued
6.0 million of 8 1/4% Series A Preferred Securities for gross proceeds of $150
million.
In March 1998, the Operating Partnership and Western National Property
Management entered into a strategic alliance that, in April 1998, will assume
all property management responsibilities for the Operating Partnership's current
Southern California portfolio. The new entity, Irvine Apartment Management
Company, will be owned 51% by the Operating Partnership and 49% by Western
National Property Management. The Company believes that this strategic alliance
will create greater efficiencies and enhance service to customers.
The address of the Company is 550 Newport Center Drive, Suite 300,
Newport Beach, California 92660. Its telephone number is (714) 720-5500.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one business segment, that of owning, operating
and developing apartment communities in Orange County, California and, since
January 1997, in Northern California's Silicon Valley and in northern coastal
markets of San Diego County. See the consolidated financial statements and notes
thereto included in Item 8 of this Annual Report on Form 10-K for financial
information about the industry segment.
DESCRIPTION OF BUSINESS
As of December 31, 1997, the Operating Partnership owned and operated
51 properties containing 14,991 units that were fully stabilized (the
"Stabilized Communities"). Upon completion of the units under construction or
development (the "Communities Under Development"), the Operating Partnership
will own a total of 17,248 units, representing an increase in units of
approximately 52% since the Initial Public Offering. Through July 2020, the
Company holds the exclusive right, but not the obligation, to acquire land from
The Irvine Company, the owner and developer of the Irvine Ranch since 1864, for
development of additional apartment communities on the Irvine Ranch.
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The Irvine Ranch is located in central Orange County, California,
between San Diego and Los Angeles. The western boundary of the Irvine Ranch
borders approximately six miles of the Pacific Ocean. Today, the portion of the
Irvine Ranch which is still owned by The Irvine Company covers approximately 90
square miles and includes more than 50,000 undeveloped acres. The developed
portion of the Irvine Ranch, which includes significant parts of the cities of
Irvine, Newport Beach and Tustin, is one of the largest urban master-planned
communities in the United States. The Irvine Ranch has been developed over the
past 30 years in accordance with an original master plan (the "Master Plan")
which, over time, has been refined to accord with locally approved general
plans. The Irvine Ranch is one of the major commercial, retail and residential
centers in Southern California.
In 1997, the Company commenced operations in Northern California's
Silicon Valley and the northern coastal markets of San Diego County. The
Company's intent is to create new market positions in California which possess
rental demographics and economic growth prospects similar to those on the Irvine
Ranch. See "Business Strategy - Off-Ranch Expansion."
For the year ended December 31, 1997, the average physical occupancy
(number of units occupied divided by the total number of units) of the
Stabilized Communities was 94.5% and the average monthly rent per unit was
$1,116. The Communities Under Development will include a total of 2,257
apartment units and have an aggregate estimated cost of approximately $310.4
million. As of December 31, 1997, 145 units were completed with 92 units
occupied and generating rental revenue in Communities Under Development.
The information set forth or incorporated by reference in this Form
10-K relating to the expansion program, the timing of future commencement and
completion of construction, the commencement of leasing activity and initial
stabilized occupancy and estimated costs of apartment communities that are in
development are only estimates. Actual results will depend on numerous factors,
many of which are beyond the control of the Company. These include the extent
and timing of economic growth in the Company's rental markets; future trends in
the pricing of construction materials and labor; entitlement decisions by local
government authorities; changes in interest rate levels; and other changes in
capital markets. No assurance can be given that the timing or estimates will not
vary substantially from actual results.
BUSINESS STRATEGY
Operating Strategies
o Provide an exceptional living environment for residents. The Properties are
developed and maintained to appeal to the highly educated, relatively
affluent base of renters. As a result of the region's closely managed
master-planning process, the Properties are and will be situated amid parks
and other open space, and in close proximity to employment centers, schools,
retail centers, and recreational facilities. They provide numerous amenities,
are well maintained and offer a high standard of customer service.
o Enhance efficiency of operations. The Company has historically subcontracted
on-site staffing, personnel management and accounting functions to three
independent property management firms. In March 1998, the Operating
Partnership and Western National Property Management ("WNPM"), the property
management firm that manages over 50% of the current portfolio, entered into
a strategic alliance that, in April 1998, will assume all property management
responsibilities for the Operating Partnership's Southern California
portfolio. The new entity, Irvine Apartment Management Company ("IAMC"), is
owned 51% by the Operating Partnership and 49% by WNPM. The Company believes
that the new strategic alliance by centralizing all property management
functions into one entity will provide greater efficiencies, over time reduce
property management fees and property management costs, improve training of
on-site employees and enhance service to customers. WNPM will be the managing
member of IAMC, responsible for its day to day operations, but the Company,
through its control of a majority of the board of directors of IAMC, will
have significant control over IAMC including approval of business plans and
budgets, compensation, and the employment of the executive officers of IAMC.
In addition, the Company will pay IAMC a property management fee which will
be adjusted to reflect the actual operating performance of the Properties,
thereby more closely aligning the interests of IAMC and the Company. The
Company also granted 100,000 options to certain executives of WNPM in order
to better align their interests with the Company. Commencing in April 2001,
the Company will also have the right, but not the obligation, to purchase
WNPM's interest in IAMC at a nominal cost.
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o Capitalize on strong brand identity with enhanced marketing and
merchandising programs. The Company has enhanced certain of its marketing
programs to broaden its brand name recognition in order to attract new
residents into its portfolio and broaden the existing resident base. The
Company's marketing programs include: a website and a single source 800
telephone number to provide information on the Properties; rental information
centers within major shopping center and the University of California at
Irvine; and a targeted advertising campaign promoting the Company's portfolio
and its quality of life characteristics.
Development Strategies
o Develop new communities to complement and expand the Company's existing
rental market base. The broad employment and renter base on the Irvine Ranch
requires development of a variety of apartment property types and amenity
levels, including projects designed for the family, luxury and senior
markets, and the area's large population of young professionals. The
Company's development program through market segmentation, identifies target
markets and, supported by consumer research and focus group studies, market
segmentation decisions are made at the earliest planning stages, when new
residential villages for the Irvine Ranch are conceived and the villages'
largest and most important amenities are selected. Location of schools,
recreational facilities, retail centers, open space and views are all
important considerations. Individual development decisions including site
location, product design, amenities and marketing programs - are also geared
to appeal to the needs and desires of the target rental market.
o Utilize experienced management to create high-quality, well-built properties
designed to sustain their value. The Company brings considerable management
expertise to all aspects of the development, construction and leasing
process. Senior management is actively involved in new project development
from the inception of a new Irvine Ranch village and is responsible for
target market identification; design of site plans, building plans, and floor
plans; project and unit amenity selection; and site-specific governmental
approvals. In addition, the Company directs the bidding and contracting of
all major construction activities, in essence acting as general contractor.
The Company engages experienced independent construction managers to act as
intermediaries with subcontractors and to manage on-site activities under the
close supervision of the Company's internal construction group. The Company
builds properties using only high-quality construction materials and
techniques, and believes that this higher initial investment in quality
enhances long-term value creation by sustaining high community rental income
levels and reducing long-term expense levels.
"Off-Ranch" Expansion
While the Company's principal focus has been on the development of
apartment communities on the Irvine Ranch, in 1997 the Company commenced an
"off-Ranch" expansion program. The Company's strategic intent is to create
meaningful market positions in some of California's most promising growth
centers by developing or acquiring apartment communities in areas that possess
rental demographics and economic growth prospects similar to those on the Irvine
Ranch.
Initially, the Company's "off-Ranch" expansion program was centered in
Northern California's Silicon Valley and the northern coastal markets of San
Diego County. As a first step, the Company acquired the assets, including
options to purchase three development sites located in the Silicon Valley, of
Thompson Residential Company, Inc. ("TRC"). In addition, the three senior real
estate executives of TRC joined the Company with primary responsibility for the
Company's off-Ranch expansion program. The Company has exercised one of the
options and has commenced construction of a 342-unit apartment community on the
site. In addition, in October 1997 the Board of Directors of the Company
authorized the exercise of another of the options, subject to receipt of
necessary entitlements. Construction of a 155-unit apartment community on the
site is expected to commence in 1998. In June 1997, the Company acquired a
923-unit apartment community (The Villas of Renaissance) located in the La Jolla
region of Northern San Diego County for $127 million, and, in the fourth quarter
of 1997, the Company purchased two development sites in Northern San Diego
County for the development of two apartment communities of approximately 326
units and 232 units, respectively. Subject to receipt of necessary entitlements,
construction of apartment communities on these sites is expected to commence in
1998.
The Company has also entered into agreements giving it the right, but
not the obligation, to acquire development sites in Northern California for the
development of over 3,000 apartment units. The Company's decision whether to
exercise these options is subject to completion of necessary due diligence and
the receipt of all necessary entitlements. Accordingly, no assurance can be
given that either of these options will be exercised.
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Irvine Ranch Master Plan
The Irvine Company is a real estate investment and community
development firm engaged in the long-term development of the Irvine Ranch. The
urbanization of the Irvine Ranch began in the 1960s with the adoption of the
pioneering comprehensive Master Plan for future community development which
originally constituted a large map of the Irvine Ranch and a series of
supporting maps detailing land uses. Subsequently, The Irvine Company worked
closely with the various local jurisdictions which govern the Irvine Ranch to
adopt general plans for the future development of their jurisdictions. The
Irvine Company's overall Master Plan was refined to accord with the approved
general plans and the residential, commercial, industrial, environmental and
aesthetic balance desired by each jurisdiction. As a result, today the Irvine
Ranch Master Plan is a compilation of the various interlocking general plans
described above. The Irvine Company continuously engages in planning activities
and the Master Plan refinement process is ongoing. The Irvine Company works
closely with local government representatives, community residents and other
civic and environmental groups to obtain the necessary local support and
entitlements for its developments. The Irvine Company works closely with local
government representatives, community residents, the Company and other civic and
environmental groups to obtain the necessary local support and entitlement for
its developments. The goal of the Master Plan was and remains to create
innovative urban and suburban environments through the well-planned, coordinated
development of residential communities and employment centers (which include
major business and retail centers, and research and development and industrial
parks) as well as civic, cultural, recreational, educational and other
supportive facilities, all with an emphasis on improving the quality of life and
achieving long-term balanced regional economic growth.
The success of the Irvine Ranch as a master-planned development is in
the large part attributable to the early creation of a broad employment base.
The Irvine Company has emphasized the promotion of job creation on the Irvine
Ranch and has been involved in creating four major employment centers on the
Irvine Ranch, each easily accessible by apartment residents and the surrounding
area. The Irvine Company has been the sole developer of the Irvine Spectrum, a
5,000-acre research, technology and employment center which houses more than
2,200 companies and approximately 44,000 employees and includes 25 million
square feet of research and development and office space. The Irvine Business
Complex, which surrounds the John Wayne airport, houses over 100,000 employees
and includes more than 24 million square feet of office and other commercial
space and over 14 million square feet of industrial space. Newport Center
contains over 4.4 million square feet of office space, a 1.3 million square-foot
regional mall (Fashion Island), a tennis club and two country clubs. In
addition, The Irvine Company donated land to the University of California at
Irvine, a 1,489-acre campus which currently has more than 17,000 students and
6,000 employees. The proximity of the Irvine Ranch Properties to these
employment centers makes them attractive residential locations.
Market Segmentation and the Village Concept
The Irvine Company's land use planning emphasizes market segmentation
in order to ensure adequate and appropriate allocation of land uses which
support sustained growth for the long term. Through careful planning, design and
marketing, The Irvine Company also promotes compatibility and synergy among
properties of the same type in order to maximize the likelihood of success of
new projects, to preserve and build value for existing projects and to build
sustainable long-term market value for homeowners, local merchants and
employers. In accordance with the Master Plan, The Irvine Company has created
twelve villages which are used as micro-planning areas in an effort to
facilitate the desired segmentation of products.
Each village across the Irvine Ranch has a thematic identity which
characterizes the primary features and attributes of the village and helps to
identify the target market for the Company's product. For example, Tustin Ranch,
in the City of Tustin, is a family-oriented village featuring an 18-hole
championship gold course, athletic fields, jogging, hiking and equestrian
trails. Along the ocean is the village of Newport Coast, an upscale community
featuring ocean views and million-dollar custom built homes. The Village of
Westpark, in Irvine, caters to young professionals with growing families and
offers the highly renowned public school system and recreational facilities of
the City of Irvine.
Within each village, the Company's target market is further defined.
The primary factor which determines the appropriate target for the product is
location. For example, the conventional product which is targeted towards young
professionals is typically located near major business centers and in close
proximity to entertainment, retail
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establishments and major transportation corridors. The student product, on the
other hand, is located within walking distance of a college or university,
student-oriented retail centers, and public transportation.
Finally, the Company specifically designs its products to appeal to a
target market. The Company's luxury product is typically in a unique location
with ocean and golf course views. The family product offers spacious play areas
and tot lots, a children's multi-purpose room with an activities coordinator,
individual garages and in-unit washers and dryers.
Exclusive Land Rights Agreement
The Company and The Irvine Company are parties to the Land Rights
Agreement pursuant to which, through July 31, 2020, the Company has the
exclusive right, but not the obligation, to acquire all land sites entitled for
residential use and designated by The Irvine Company as ready for apartment
community development in accordance with The Irvine Company's Master Plan. The
determination to exercise an option with respect to a site is made solely by the
Independent Directors Committee of the Company's Board of Directors. Under this
Agreement, the Operating Partnership has purchased ten apartment community land
sites since IAC's Initial Public Offering, seven of which are now Stabilized
Communities and three of which are now the Communities Under Development. Under
the terms of the Land Rights Agreement, through July 31, 2000, the purchase
price for any apartment community sites acquired may be paid with either cash,
Common Stock of the Company or common limited partnership interests in the
Operating Partnership ("Common L.P. Units"), at the option of the Company. After
July 31, 2000, the choice of consideration will revert to The Irvine Company. In
no event shall the purchase price for any apartment community land site exceed
95% of the value of such site as determined by independent appraisals. In
addition, the purchase price for apartment sites which encompassed the first
1,800 apartment units the Company developed commencing in mid-1995 were set at
an amount such that each project's budgeted pro forma unleveraged return on
costs for the first 12 months following stabilized occupancy was between 10.0%
and 10.5%. Seven land sites for the development of apartment communities which
will contain 1,884 units have been purchased under this arrangement.
Accordingly, the purchase price for all future land sites will be no greater
than 95% of the appraised value. Independent appraisals will be obtained by each
of the Company and The Irvine Company for all future sites, prior to the
Independent Directors Committee determining whether the Company will exercise
its right to purchase a land site. The Irvine Company may not develop,
construct, maintain, operate, use, lease or sell land or any improvements
thereon, for apartment use, without the express written consent of the Operating
Partnership. If the Company elects not to exercise its option for any site, the
Company will thereafter have a right of first refusal on the sale of such site
to a third party if the terms of such sale are more favorable than those offered
to the Company. The determination to exercise an option or the right of first
refusal under the Land Rights Agreement with respect to any site will be made
solely by a majority of the Independent Directors Committee.
Pursuant to the Land Rights Agreement, The Irvine Company and its
Chairman, Donald Bren, have agreed to conduct their apartment community
development and ownership activities on the Irvine Ranch solely through the
Company. These restrictions terminate upon the occurrence of certain conditions.
Capital and Financing Strategies
The Company intends to maintain a conservative ratio of debt to total
market capitalization (the market value of issued and outstanding shares of
Common Stock of IAC and the limited partnership units of the Operating
Partnership plus total debt) of not greater than 60%. As of December 31, 1997,
the ratio of debt to total market capitalization was 33%.
The Company has established a debt policy relative to its total market
capitalization, a ratio commonly employed by REITs, rather than to the book
value of its assets because the Company believes that the book value of its
assets (which to a large extend is the depreciated value of its apartments) does
not accurately reflect its ability to borrow and to meet debt service
requirements. The market capitalization of the Company, however, is more
variable than book value and does not necessarily reflect the fair market value
of the underlying assets of the Company. Although the Company will consider
factors other than market capitalization in making decisions regarding the
incurrence of debt and the issuance of preferred limited partner units by the
Operating Partnership (such as the estimated market value of such properties
upon refinancing, and the ability of particular properties and the Company as a
whole to generate cash flow to cover expected debt services), there can be no
assurance that the Company will maintain the ratio of debt to market
capitalization (or to any other measure of asset value) described above.
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The Company completed two significant equity and financing transactions
in 1997 and one in early 1998. In February 1997, an equity offering was
completed along with an investment from The Irvine Company in the Operating
Partnership, providing proceeds of $66 million in the aggregate. In October
1997, the Operating Partnership issued $100 million aggregate principal amount
of 7% senior unsecured notes. Additionally, in January 1998, the Trust issued
6.0 million of 8 1/4% Series A Preferred Securities. The proceeds of $150
million were used to purchase an equivalent amount of 8 1/4% Series A Preferred
Limited Partner Units in the Operating Partnership. The Operating Partnership
used the $150 million of proceeds, net of costs and operating expenses, all of
which were paid by the Operating Partnership, to repay the outstanding
borrowings under the credit facility and to fund development. All of these
transactions are more fully discussed in Management Discussion and Analysis
included in this Annual Report on Form 10-K.
COMPETITION
The Properties are located in developed areas. There are numerous other
rental apartment properties within and around the market area of each property.
The number of competitive rental properties in the area could have a material
effect on the Company's ability to rent the apartments at the Properties and the
rents charged.
EMPLOYEES
As of March 15, 1998, the Company had 73 employees. None of the
Company's employees are subject to a collective bargaining agreement and the
Company has experienced no labor-related work stoppages. The Company considers
its relations with its personnel to be good.
TAX STATUS
IAC has made an election to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). IAC
generally will not be subject to federal income tax to the extent it distributes
at least 95% of its REIT taxable income to its shareholders. If IAC fails to
qualify as a REIT in any taxable year, IAC will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Even if IAC qualifies for taxation as a REIT, IAC may
be subject to certain state and local taxes on its income and property and to
federal income and excise taxes on its undistributed income.
CYCLICALITY
The Company's business, and the residential housing industry in
general, are cyclical. The Company's operations and markets are affected by
local and regional factors such as local economies, demographic demand for
housing, population growth, property taxes, energy costs, and by national
factors such as short and long-term interest rates, federal mortgage financing
programs, federal income tax provisions and general economic trends. Occupancy
varies only slightly on a seasonal basis, with the lowest occupancy typically
occurring in the summer months.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and
regulations, an owner of real property may be held liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or in
the property. These laws often impose such liability without regard to whether
the owner knew of, or was responsible for, the presence of the hazardous or
toxic substances. The costs of any required remediation or removal of such
substances may be substantial. In addition, the owner's liability as to any
property is generally not limited under such laws, ordinances and regulations
and could exceed the value of the property and/or the aggregate assets of the
owner. The presence of such substances, or the failure to remediate such
substances properly, may also adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. Under such
laws, ordinances and regulations, an owner or any entity who arranges for the
disposal of hazardous or toxic substances, such as asbestos, at a disposal
facility may also be liable for the costs of any required remediation or removal
of the hazardous or toxic substances at the facility, whether or not the
facility is owned or operated by such owner or entity. In connection with the
ownership of the Properties or the disposal of hazardous or toxic substances,
the Company may be liable for such costs.
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The groundwater underlying portions of the City of Irvine generally
contains elevated levels of certain inorganic compounds. In addition, two United
States Marine Corps air bases where soil and groundwater contamination have been
discovered are located adjacent to the Irvine Ranch. Although the Company
believes that contamination at one of these bases is localized, there can be no
assurances that it has not migrated onto any of the Irvine Ranch Properties. The
other base is listed on the National Priorities List and activities from this
base have resulted in groundwater contamination in the vicinity of this base.
The Company has knowledge that contamination from this base has migrated into
the groundwater underlying some of the Irvine Ranch Properties. The Company
believes that most of the groundwater is located at a substantial depth under
the land surface. Since the Company believes that the Orange County Water
District together with the Department of Defense are currently conducting and
will continue to conduct remediation activities at this base and in the area,
the Company believes that it will not incur any remediation costs in connection
with the groundwater contamination.
Other federal, state and local laws may impose liability for release of
asbestos containing materials (ACMs) into the air or require the removal of
damaged ACMs in the event of remodeling or renovation. There are ACMs at 11 of
the Properties, primarily in floor coverings and acoustical ceiling materials.
The Company believes that the ACMs at these properties are generally in good
condition. Comprehensive operations and maintenance plans have been implemented
for properties where ACMs are present. In addition, property custodial and
maintenance workers are trained to deal effectively with the maintenance of
existing ACMs. The Company believes it is in compliance in all material respects
with all federal, state, and local laws relating to ACMs and that there are no
regulatory requirements that currently require the removal of these ACMs;
however, if the Company were required to remove all ACMs present in its
properties over a short time frame, the cost of such removal would have a
material adverse effect on its financial condition and results of operations.
The Company also believes that ACMs are not present in the remaining Properties.
The Irvine Ranch Water District, a municipal corporation, owns and maintains
underground cement water pipes which contain asbestos and which are serving a
number of the Properties. Since these pipes are owned and maintained by the
Irvine Ranch Water District, the Company believes that any potential
environmental liabilities associated with these pipes will be incurred by the
Irvine Ranch Water District.
The Company has not been notified by any governmental authority of any
material noncompliance, liability, or other claim in connection with any of the
Properties. In addition, environmental assessments (which involve physical
inspections without soil or groundwater analyses and generally without radon
testing) were obtained on all Properties in 1993 or later except for two which
were obtained more than five years ago. In addition, environmental assessments
are performed on all sites under option prior to the Company exercising its
option. The Company is not aware of any environmental liability relating to the
Properties that it believes would have a material adverse effect on its
business, assets or results of operations. Nevertheless, it is possible that the
environmental assessments did not reveal all environmental liabilities with
respect to the Properties, that environmental liabilities have developed with
respect to the Properties since the environmental assessments were prepared or
that there are material environmental liabilities of which the Company is
unaware with respect to the Properties. Moreover, no assurance can be given that
future laws, ordinances or regulations will not impose material environmental
liabilities or that the current environmental condition of the Properties will
not be affected by residents and occupants of the Properties or by the uses or
condition of properties in the vicinity of the Properties, such as leaking
underground storage tanks, or by third parties unrelated to the Company.
REGULATION
Apartment community properties are subject to various laws, ordinances,
and regulations, including regulations relating to recreational facilities such
as swimming pools, activity centers and other common areas. The Company believes
that each property has all material permits and approvals to operate its
business. Rent control laws currently are not applicable to any of the
Properties. However, there can be no assurance that rent control requirements
will not be initiated in the future.
The Properties and any newly acquired or developed apartment community
must comply with Title II of the Americans with Disabilities Act (the "ADA") to
the extent that such properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requires removal of
structural barriers to handicapped access in certain public areas of the
Properties where such removal is "readily achievable." The ADA does not,
however, consider residential properties, such as apartment communities, to be
public accommodations or commercial facilities, except to the extent portions of
such facilities, such as a leasing office, are open to the public. The Company
believes that the Properties comply in all material respects with all present
requirements under the
8
<PAGE> 9
ADA and applicable state laws. Noncompliance with the ADA could result in
imposition of fines or an award of damages to private litigants.
The Fair Housing Act (the "FHA") requires, as part of the Fair Housing
Amendments Act of 1988, apartment communities first occupied after March 13,
1990 to be accessible to the handicapped. Noncompliance with the FHA could
result in the imposition of fines or an award of damages to private litigants.
The Company believes that the Properties that are subject to the FHA are in
compliance with such law.
Approximately 2,900 units in portions of 31 of the Company's Stabilized
Communities are currently subject to resident income limitations which generally
restrict rental of the affected units to low or moderate income residents and
which, in most instances, also limit the amount of rent that may be charged for
a particular unit. A brief summary of the basis and effect of these resident
income and other limitations follows:
The development of 23 of the 31 Stabilized Communities was financed
with the proceeds of tax-exempt multifamily housing revenue bonds issued by
various local municipalities. These bonds were refunded in May 1995 and
consolidated under one issuer, California Statewide Communities Development
Authority. Regulatory agreements applicable to such financings (a) require that
a specified percentage of the units be set aside for residents whose incomes do
not exceed a specified percentage of the area median income and (b) in most
instances, limit the rent which can be charged to a percentage of the maximum
qualifying resident income level for the affected unit. Most of these
restrictions will terminate upon the maturity date of the bond issue.
In addition to the rental restrictions imposed by the bond regulatory
agreements, many of the 23 properties and three additional properties are also
subject to resident income and rent limitations by virtue of development and
other agreements entered into with local municipalities and private and
quasi-public interest groups. These restrictions are similar in scope and
substance to the other restrictions discussed above.
Five of the 31 Stabilized Communities were developed with the
assistance of U.S. Department of Housing and Urban Development ("HUD")
administered programs which provided mortgage insurance to the project lender.
Certain regulatory and other agreements with HUD applicable to such financings
(a) impose resident income restrictions similar to those imposed by the bond
financing agreements, and (b) generally require the Company to operate the
Properties in accordance with HUD's standards. With respect to one of the
properties (i.e., The Parklands), a regulatory agreement additionally (a) limits
the distribution of income from the property to 10% of the HUD imputed equity in
the property and (b) requires that any income in excess of such 10% limit be
deposited into a residual receipts account. Amounts paid into such residual
receipts account have historically been used for capital improvements to the
property, subject to HUD's consent. At the expiration of the applicable
regulatory or other agreement, any amount remaining in such residual receipts
account belongs to HUD.
Under Section 8 of the United States Housing Act of 1937, HUD currently
provides rental assistance payments to each of these five HUD properties
pursuant to certain Housing Assistance Payments ("HAP") contracts. Under the HAP
contracts, so long as the units are rented to residents whose income levels do
not exceed specified HUD guidelines, each qualifying resident is required to pay
only 30% of their adjusted monthly income as rent and HUD pays the difference
between the 30% payment and the unit's market rents as established by HUD. The
above-mentioned restrictions and limitations will continue for the remainder of
each HAP contract term. Each HAP contract has an initial term of 20 years with
four 5-year renewal options exercisable at the owners option. At December 31,
1997, the average remaining term of the HAP contracts was approximately 5 years.
Each of the resident and income restricted units within the Company's
portfolio has been subject to one or more of the foregoing restrictions either
since their initial occupancy or as a result of subsequent agreements with the
applicable governmental authority or other private or quasi-public interest
groups. Accordingly, the effect of these restrictions on rental income from the
Properties has been reflected in the historical financial results of the
Company.
The Company believes that it is in material compliance with all of the
foregoing requirements. The failure of the Company to comply with the terms of
any of the foregoing could adversely affect the Company's operations.
The Company may purchase land in the future, which as a condition of
purchase has the inclusion of units at below market rental rates. Construction
of such properties may be financed with tax-exempt debt. In any case, the
9
<PAGE> 10
Company will evaluate the economics inclusive of any rental restriction and
benefit of below-market, tax-exempt financing prior to purchasing the land.
FACTORS RELATING TO REAL ESTATE OPERATIONS AND DEVELOPMENT
General: Real property investments are subject to varying degrees of
risk. The investment returns available from equity investments in real estate
depend in large part on the amount of income earned and capital appreciation
generated by the related properties as well as the expenses incurred. If the
Properties do not generate revenue sufficient to meet operating expenses,
including debt service and capital expenditures, the Company's income and
ability to service its debt and other obligations and to make distributions to
its shareholders/partners will be adversely affected. In addition, the
Properties consist primarily of rental apartment communities geographically
concentrated in Orange County. Income from and the performance of the Irvine
Ranch Properties may therefore be adversely affected by the general economic
climate in Orange County, including unemployment rates and local conditions such
as the supply of and demand for apartments in the area, the attractiveness of
the Irvine Ranch Properties to residents, zoning or other regulatory
restrictions, competition from other available apartments and alternative forms
of housing, the affordability of single family homes, the ability of the Company
to provide adequate maintenance and insurance and the potential of increased
operating costs (including real estate taxes). Certain significant expenditures
associated with an investment in real estate (such as mortgage and other debt
payments, real estate taxes and maintenance costs) generally are not reduced
when circumstances cause a reduction in revenue from the investment. In
addition, income from properties and real estate values are also affected by a
variety of other factors, such as governmental regulations and applicable laws
(including real estate, zoning and tax laws), interest rate levels and the
availability of financing. The Irvine Ranch Properties in the aggregate
historically have generated positive cash flow from operations; however, no
assurance can be given that such will be the case in the future.
In 1997, the Company commenced an "off-Ranch" expansion program through
the acquisition of rights to purchase three apartment community development
sites located in Northern California's Silicon Valley. The Company commenced
construction of a 342-unit apartment community on one of such sites in May 1997
and in October 1997, the Company's Board of Directors authorized, subject to
receipt of necessary entitlements, the acquisition of another of the development
sites. Construction of an apartment community of approximately 155 units on this
site is expected to commence in the first half of 1998. On June 30, 1997, the
Operating Partnership acquired an existing 923-unit apartment community located
in Northern San Diego County. In addition, in the fourth quarter of 1997, the
Company purchased two development sites located in Northern San Diego County for
construction of two apartment communities of approximately 326 units and 232
units. Subject to receipt of necessary entitlements, construction of these
apartment communities is expected to commence in the first half of 1998. These
new Properties represent the Company's first strategic expansion off the Irvine
Ranch and the Company may make additional investments in California in the
future. The development, construction and operation of rental apartment
communities in such new markets may present risks different than or in addition
to the risks discussed above related to the Irvine Ranch Properties which are
located entirely in Orange County. For jurisdictions off the Irvine Ranch, local
jurisdiction approvals with respect to entitlements may impose requirements and
conditions different from those applicable to the Irvine Ranch. No assurance can
be given that the Company will be successful in pursuing any additional
"off-Ranch" expansion or that any "off-Ranch" apartment communities will be
successful.
Equity real estate investments, such as the investments made by the
Company in the Properties and any additional properties that may be developed or
acquired by the Company, are relatively illiquid. Such illiquidity limits the
ability of the Company to vary its portfolio in response to changes in economic
or other conditions. In addition, the Internal Revenue Code places limits on the
Company's ability to sell properties held for fewer than four years, which may
affect the ability of the Company to sell properties without adversely affecting
returns to holders of common stock.
The Properties are subject to all operating risks common to apartment
ownership in general. Such risks include: the Company's ability to rent units at
the Properties, including the 2,112 units in the Communities Under Development;
competition from other apartment communities; excessive building of comparable
properties which might adversely affect apartment occupancy or rental rates;
increases in operating costs due to inflation and other factors which increases
may not necessarily be offset by increased rents; increased affordable housing
requirements that might adversely affect rental rates; inability or
unwillingness of residents to pay rent increases; and future enactment of rent
control laws or other laws regulating apartment housing, including present and
possible future
10
<PAGE> 11
laws relating to access by disabled persons. If operating expenses increase, the
local rental market may limit the extent to which rents may be increased to meet
increased expenses without decreasing occupancy rates. If any of the above
occurred, IAC's ability to meet its debt service and other obligations and to
make distributions with respect to its common stock and the partnership
interests of the Operating Partnership could be adversely affected.
Real Estate Development and Acquisition: A primary focus of the Company
is the development of new apartment communities on sites acquired or that may be
acquired in the future, primarily from The Irvine Company, although the Company
also plans to develop new rental apartment communities on sites acquired or that
may be acquired in the future from third parties. The Company has also acquired,
and may continue to acquire, completed communities. The real estate development
business involves significant risks in addition to those involved in the
ownership and operation of established apartment communities, including the
risks that specific project approvals may take more time and resources to obtain
than expected, that construction may not be completed on schedule or budget and
the properties may not achieve anticipated rent or occupancy levels. In
addition, if long-term debt or equity financing is not available on acceptable
terms to finance new development or acquisitions undertaken without long-term
financing, further development activities or acquisitions might be curtailed or
cash available for debt service and other obligations might be adversely
affected.
The development of apartment communities both on and off the Irvine
Ranch, requires the investment of funds, sometimes in substantial amounts, prior
to the completion of necessary due diligence and/or the receipt of necessary
entitlements for the acquisition of a land site or an apartment community. In
addition, the Company has entered into agreements giving it the right, but not
the obligation, to acquire land sites in Northern California for the development
of over 3,000 apartment units, subject to the receipt of necessary entitlements.
If such entitlements are not obtained, or if for any reason any projects are
abandoned, the associated costs would be expensed. While the Operating
Partnership seeks to mitigate such risk and has not written off significant
amounts to date, no assurance can be given that it will not be required to do so
in the future.
Insurance: The Company carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company believes are adequate and
appropriate under the circumstances. There are, however, certain types of losses
(such as from earthquakes) that are not generally insured because they are
either uninsurable or not economically insurable. The Company does not carry
earthquake insurance on any of the Properties. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its capital
invested in the property, as well as the anticipated future revenues from the
property, and, in the case of debt which is recourse to the Company, would
remain obligated for any mortgage debt or other financial obligations related to
the property. Any such loss would adversely affect the Company. The Company
believes that the Properties are adequately insured. In addition, in light of
the California earthquake risk, California building codes since the early 1970's
have established construction standards for all newly built and renovated
buildings, including apartment buildings, the current and strictest construction
standards having been adopted in 1984. Thirty-two of the existing 51 Stabilized
Communities (representing approximately 69% of the units in the Communities)
have been completed and occupied since January 1, 1985, and the Company believes
that all of the Stabilized Communities were constructed, and all of the
Communities Under Development are being constructed, in full compliance with the
applicable standards existing at the time of construction. While earthquakes
have occurred from time to time in California, the Company has not experienced
any material losses as a result of earthquakes. No assurance can be given that
this will be the case in the future.
11
<PAGE> 12
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information regarding the executive
officers of the Company as of March 15, 1998 and other positions held by them
over the last five years:
<TABLE>
<CAPTION>
YEARS
NAME AGE PRESENT AND PRIOR POSITIONS HELD (1) POSITIONS HELD
---- --- -------------------------------- --------------
<S> <C> <C> <C>
William H. 58 President and Chief Executive Officer 1997 - Present
McFarland Executive Vice President, Land and Residential
Development,
The Irvine Company 1984 - 1997
Richard E. Lamprecht 38 Senior Vice President, President - Irvine 1997 - Present
Ranch Division 1993 - 1997
Vice President, Development 1989 - 1993
Vice President, Development, Irvine Pacific
James E. Mead 38 Senior Vice President, Chief Financial Officer 1996 - Present
and Secretary
Senior Vice President and Treasurer 1994 - 1996
Vice President, Corporate Finance, The Irvine
Company 1991 - 1994
William W. Thompson 52 Senior Vice President, President - California 1997 - Present
Division
President, Thompson Residential 1996 - 1997
Partner, Trammell Crow Residential, Northern 1984 - 1995
California
Hank Baker 49 Vice President, Marketing 1996 - Present
Owner, Baker Property Advisors 1992 - 1996
Vice President, Northern California, Forest
City Properties Corporation 1986 - 1992
Bruce N. Dorfman 38 Vice President, Development, California 1997 - Present
Division
Vice President, Development, Thompson 1996 - 1997
Residential
Vice President, Finance, Trammell Crow 1992 - 1995
Residential, Northern California
Shawn Howie 42 Vice President, Corporate Finance and 1997 - Present
Controller
Vice President and Controller 1993 - 1997
Senior Manager, Ernst & Young 1986 - 1993
Robert J. Hughes 47 Vice President, Construction, California 1997 - Present
Division
Vice President, Construction, Thompson 1996 - 1997
Residential 1994 - 1996
Vice President, Construction, Trammell Crow 1987 - 1993
Residential
Project Manager, Loran Grancorp
David A. McAllister 63 Vice President, Construction, Irvine Ranch 1993 - Present
Division
Director of Operations, California Pacific 1992 - 1993
Homes
Kevin P. Payne 40 Vice President, Development, Irvine Ranch 1997 - Present
Division
Senior Vice President and Regional Director,
West Coast Division, Kaufman and Broad 1997
Vice President, Development, Kaufman and Broad 1994 - 1997
Vice President, Development, Picerne Associates 1990 - 1994
Scott A. Reinert 39 Vice President, Operations 1994 - Present
Chief Operating Officer, Southeast, GFS 1990 - 1994
Northstar
</TABLE>
- --------------------
(1) The first position held is with the Company. The Irvine Company and
California Pacific Homes are affiliates of the Company. Irvine Pacific is
the Predecessor to the Company.
12
<PAGE> 13
ITEM 2. PROPERTIES
The Company owns Stabilized Communities containing 14,991 apartment
units and had eight Communities Under Development. The Properties are located
within the following individual jurisdictions:
<TABLE>
<CAPTION>
COMMUNITIES
STABILIZED COMMUNITIES UNDER DEVELOPMENT TOTAL
---------------------- ---------------------- --------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF PERCENT
LOCATION PROPERTIES UNITS PROPERTIES UNITS PROPERTIES OF TOTAL
- -------- ---------- ----------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ORANGE COUNTY
Irvine 36 9,642 3 796 39 60%
Newport Beach 7 2,060 1 245 8 14%
Tustin 6 1,854 1 316 7 13%
Newport Coast 1 512 1 2%
SILICON VALLEY 1 342 1 2%
NORTHERN SAN DIEGO COUNTY 1 923 2 558 3 9%
- ------------------------------------------------------------------------------------------------
Totals 51 14,991 8 2,257 59 100%
================================================================================================
</TABLE>
The unit mix of the Properties is as follows:
<TABLE>
<CAPTION>
STABILIZED COMMUNITIES
COMMUNITIES UNDER DEVELOPMENT TOTAL UNIT PERCENT OF
UNIT TYPE UNIT COUNT UNIT COUNT COUNT TOTAL UNITS
- --------- ----------- ----------------- ---------- -----------
<S> <C> <C> <C> <C>
Studio/Junior 471 471 3%
One Bedroom 3,961 639 4,600 27%
Two Bedroom 9,244 1,330 10,574 61%
Three Bedrooms or More 1,315 288 1,603 9%
- -----------------------------------------------------------------------------------------------
Total 14,991 2,257 17,248 100%
===============================================================================================
</TABLE>
Information as to the Company's Properties is included on pages 19 and
37 of IAC's 1997 Annual Report to Shareholders, which is included as part of
Exhibit 13 and is incorporated in this Annual Report on Form 10-K. In addition,
the real estate and accumulated depreciation schedule of Irvine Apartment
Communities, Inc. is included on pages 19 and 20 of this Annual Report on Form
10-K.
The Company believes that the Properties are well maintained and have
no material deferred maintenance requirements or current need for major
renovations. The average age of the Stabilized Communities is approximately 13
years. The oldest of the Stabilized Communities was completed in 1969, and 32 of
the 51 Stabilized Communities, totaling 10,323 units or approximately 69% of the
Stabilized Communities, have been completed since January 1, 1985. The number of
units per Property ranges from 58 units to 923 units, with an average of
approximately 294 units.
The Company seeks to assure that the Properties remain attractive
dwellings for apartment residents and desired locations for prospective
apartment residents. Maintenance, custodial and groundskeeping personnel perform
regular maintenance and upkeep on the Properties to preserve and enhance
physical and aesthetic attributes. The physical appearance of and apartment
residents' satisfaction with the Properties and with the performance of the
local property managers is monitored and evaluated on an on-going basis by the
Company's senior management.
All of the Stabilized Communities provide, and the Communities Under
Development will provide, residents with numerous amenities and include
extensive landscaping. More than 86% of the 51 Stabilized Communities contain
swimming pools, spas, air conditioning and covered parking. Additional amenities
may include a fitness center, recreational room, sauna and tennis courts. Each
apartment unit includes a patio, porch or balcony. Many apartment units offer
one or more of certain additional features, such as vaulted ceilings,
fireplaces, enclosed garages, refrigerators, washers and dryers, and microwave
ovens. The Communities Under Development contain almost all of these amenities.
13
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Properties are currently subject to any
material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
IRVINE APARTMENT COMMUNITIES, INC.
As of February 17, 1998, there were 777 holders of record of IAC's
common stock. IAC believes that there are approximately 11,000 shareholders.
Information as to IAC's quarterly stock prices is included on the
inside back cover of IAC's 1997 Annual Report to Shareholders, which is included
as part of Exhibit 13 and is incorporated in this Annual Report on Form 10-K.
Information as to the principal markets on which IAC's common stock is
being traded is included on the inside back cover of IAC's 1997 Annual Report to
Shareholders, which is included as part of Exhibit 13 and is incorporated in
this Annual Report on Form 10-K.
IAC intends to pay regular quarterly distributions. IAC's historical
quarterly distribution payments are included on the inside back cover of IAC's
1997 Annual Report to Shareholders, which is included as part of Exhibit 13 and
is incorporated in this Annual Report on Form 10-K.
IRVINE APARTMENT COMMUNITIES, L.P.
There is no established public trading market for the Operating
Partnership's Common L.P. Units. As of February 17, 1998, there were three
holders of Common L.P. Units.
The Operating Partnership intends to pay regular quarterly dividends.
The following table sets forth the quarterly distributions paid by the Operating
Partnership to holders of its Common L.P. Units.
<TABLE>
<CAPTION>
DISTRIBUTIONS PER
PAYABLE DATE COMMON L.P. UNIT
------------ -----------------
<S> <C>
February 29, 1996 $ 0.355
May 31, 1996 0.355
August 30, 1996 0.365
November 27, 1996 0.365
February 28, 1997 0.365
May 30, 1997 0.365
August 29, 1997 0.375
November 26, 1997 0.375
</TABLE>
The return of capital portion of these distributions was 18% and 9% in
1996 and 1997, respectively.
During the fourth quarter of 1997 the Operating Partnership sold the
following units of limited partnership interest in the Operating Partnership
pursuant to Section 4(2) of the Securities Act of 1933:
1. An aggregate of 7,259 Common L.P. Units were sold in November 1997 for
$221,720 in cash at prices ranging from $31.00 to $31.125 per Common L.P.
Unit, in connection with The Irvine Company's exercise
14
<PAGE> 15
of its proportional purchase rights with respect to sales of IAC's common
stock pursuant to its Dividend Reinvestment and Additional Cash Investment
Plan.
2. 179,433 Common L.P. Units were issued to The Irvine Company on October 21,
1997 as payment for a land site acquired for $5.7 million. The number of
Common L.P. Units issued was equal to the purchase price divided by the
average of the closing prices of IAC's common stock for the 10 trading
days immediately preceding the closing date of the acquisition.
3. 305,707 Common L.P. Units were issued to an affiliate of The Irvine
Company on December 1, 1997 as payment for a land site acquired for $9.5
million. The number of Common L.P. Units issued was equal to the purchase
price divided by the average of the closing prices of IAC's common stock
for the 10 trading days immediately preceding the closing date of the
acquisition.
4. 332,060 Common L.P. Units were issued to The Irvine Company on December
16, 1997 as payment for a land site acquired for $10.3 million. The number
of Common L.P. Units issued was equal to the purchase price divided by the
average of the closing prices of IAC's common stock for the 10 trading
days immediately preceding the closing date of the acquisition.
With the exception of 106,696 Common L.P. Units issued to an affiliate
of The Irvine Company, each of the foregoing Common L.P. Units is exchangeable
for common stock of IAC on a one-for-one basis, subject to adjustment and
certain limitations as set forth in the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership. The 106,696 Common L.P. Units
are not exchangeable for common stock absent approval of the shareholders of
IAC.
ITEM 6. SELECTED FINANCIAL DATA
IRVINE APARTMENT COMMUNITIES, INC.
The Selected Financial Information of Irvine Apartment Communities,
Inc. and Predecessor for the five-year period ended December 31, 1997 is
included on page 13 in IAC's 1997 Annual Report to Shareholders, which is
included as part of Exhibit 13 and is incorporated in this Annual Report on Form
10-K. It should be read in conjunction with the consolidated financial
statements included on pages 21 through 36 in IAC's 1997 Annual Report to
Shareholders which are also included as part of Exhibit 13 and incorporated in
this Annual Report on Form 10-K and the financial statement schedule below in
Item 14 of this Annual Report on Form 10-K.
15
<PAGE> 16
IRVINE APARTMENT COMMUNITIES, L.P.
SELECTED FINANCIAL INFORMATION(1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Years Ended December 31,
(in thousands, except percentages, per 1997 1996 1995 1994 1993
unit and property information)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING INFORMATION
Total revenues $ 186,945 $158,698 $136,168 $130,236 $124,820
Income (loss) before extraordinary item $ 58,583 $ 41,192 $ 25,056 $12,279 $ (387)
Net income $ 58,583 $ 41,192 $ 1,629 $12,279 $(12,874)
Basic earnings per unit $ 1.34 $ 1.06 $ 0.05 $ 0.41 $ 0.01
Diluted earnings per unit $ 1.34 $ 1.05 $ 0.05 $ 0.41 $ 0.01
Cash distributions per unit $ 1.48 $ 1.44 $ 1.39 $ 1.11
Apartment units (at end of period) 15,136 13,656 12,776 11,358 11,334
- -----------------------------------------------------------------------------------------------
SELECTED STABILIZED
PROPERTY INFORMATION(2)
Total properties (at end of period) 51 48 43 43 42
Average units 14,452 12,139 11,334 11,334 10,799
Average physical occupancy 94.5% 94.9% 94.6% 95.6% 96.3%
Average monthly rent per unit(3) $ 1,116 $ 1,025 $ 996 $ 981 $ 963
- -----------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET INFORMATION
AT DECEMBER 31,
Total assets $1,163,677 $900,998 $853,230 $757,240 $740,120
Total long-term debt $ 704,063 $553,064 $563,286 $540,689 $513,943
Partners' capital $ 421,227 $320,344 $264,566 $191,049 $212,344
===============================================================================================
</TABLE>
1 The selected financial information includes historical data of the Operating
Partnership and, prior to December 8, 1993, the date of IAC's initial public
offering, the Company's Predecessor. See Note 1 to Consolidated Financial
Statements.
2 A property is considered stabilized at the earlier of one year after
completion of construction or when it achieves 95% occupancy.
3 Average monthly rent per unit is calculated by dividing average rental revenue
per unit by average economic occupancy.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IRVINE APARTMENT COMMUNITIES, INC.
Management's Discussion and Analysis of Financial Condition and Results
of Operations is included on pages 14 through 20 in IAC's 1997 Annual Report to
Shareholders, which are included as part of Exhibit 13 and are incorporated in
this Annual Report on Form 10-K.
IRVINE APARTMENT COMMUNITIES, L.P.
Because IAC conducts all of its operations through the Operating
Partnership, the information referred to under "Irvine Apartment Communities,
Inc." above is equally applicable to the Operating Partnership as to IAC.
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Irvine Apartment Communities,
Inc. are included on pages 21 through 36 in IAC's 1997 Annual Report to
Shareholders, which are included as part of Exhibit 13 and are incorporated in
this Annual Report on Form 10-K.
For the consolidated financial statements and financial statement
schedule of Irvine Apartment Communities, L.P., see "Index to Consolidated
Financial Statements" on page F-1.
A financial statement schedule for IAC is included on pages 19 and 20
of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
IRVINE APARTMENT COMMUNITIES, INC.
Information regarding IAC's executive officers required by Item 401 of
Regulation S-K is furnished in a separate disclosure in Part I of this Annual
Report on Form 10-K because the Company does not furnish such information in its
definitive Proxy Statement prepared in accordance with Schedule 14A.
The Notice and Proxy Statement for IAC's 1998 Annual Meeting of
Shareholders filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934, which is incorporated by reference in this Annual Report on Form 10-K
pursuant to General Instruction G(3) of Form 10-K, provides the remaining
information with respect to IAC required under Part III (Items 10, 11, 12 and
13).
IRVINE APARTMENT COMMUNITIES, L.P.
The Operating Partnership does not have any directors or officers. The
Operating Partnership is managed by IAC. Information with respect to the
Operating Partnership required under Part III (Items 10, 11, 12 and 13) is
included as described above under "Irvine Apartment Communities, Inc." and is
also incorporated by reference to the information contained in the Notice and
Proxy Statement for IAC's 1998 Annual Meeting of Shareholders, a copy of which
is incorporated by reference in Exhibit 99 hereto. All of such information is
equally applicable to the Operating Partnership as to IAC. Supplementally, the
ownership of Common L.P. Units by The Irvine Company, described in the Notice
and Proxy Statement for IAC's 1998 Annual Meeting of Shareholders, would
constitute 98.5% of the outstanding Common L.P. Units.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements, together with the report thereon
of Ernst & Young LLP dated January 30, 1998, all appearing on pages 21 through
36 in IAC's 1997 Annual Report to Shareholders, are incorporated in this Annual
Report on Form 10-K. The aforementioned information and the information
incorporated by reference to Items 2, 5, 6, 7 and 8, from IAC's 1997 Annual
Report to Shareholders attached as Exhibit 13, is incorporated into this Annual
Report on Form 10-K.
17
<PAGE> 18
Pages 13 through 36 and the inside back cover in IAC's 1997 Annual
Report to Shareholders include the Five Year Summary, Management's Discussion
and Analysis of Financial Condition and Results of Operations, the Consolidated
Financial Statements and related notes thereto, the Report of Independent
Auditors, Shareholder Information and Quarterly Stock Prices. These pages are
included as part of Exhibit 13 to this Annual Report on Form 10-K.
For the consolidated financial statements and financial statement
schedule of Irvine Apartment Communities, L.P., see "Index to Consolidated
Financial Statements" on page F-1 of this Annual Report on Form 10-K.
Schedule III-Consolidated Real Estate and Accumulated Depreciation for
IAC is included on pages 19 and 20 of this Annual Report on Form 10-K.
18
<PAGE> 19
IRVINE APARTMENT COMMUNITIES, INC.
SCHEDULE III -- CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at December 31, 1997(a)(b)
------------------------------------
Number of Encum- Buildings and Accumulated Date of Depreciable
Property Units brances(c) Land(d) Improvements Total Depreciation Completion Life(e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES STABILIZED FOR ALL OF 1997:
IRVINE, CALIFORNIA
Amherst Court 162 $ 1,430 $ 11,265 $ 12,695 $ 2,675 1991 5-40 yrs.
Berkeley Court 152 $ 7,722 858 8,273 9,131 3,041 1986 5-40 yrs.
Cedar Creek 176 8,492 519 8,666 9,185 3,280 1985 5-40 yrs.
Columbia Court 58 2,572 321 2,689 3,010 961 1984 5-40 yrs.
Cornell Court 109 5,145 785 5,065 5,850 1,760 1984 5-40 yrs.
Cross Creek 136 6,680 561 7,317 7,878 2,786 1985 5-40 yrs.
Dartmouth Court 294 17,114 2,674 17,338 20,012 6,005 1986 5-40 yrs.
Deerfield 288 10,656 3,810 11,649 15,459 4,740 1975/83 5-40 yrs.
Harvard Court 112 5,101 1,034 5,880 6,914 2,118 1986 5-40 yrs.
Northwood Park 168 7,674 1,246 8,498 9,744 3,307 1985 5-40 yrs.
Northwood Place 604 29,813 4,613 34,542 39,155 12,081 1986 5-40 yrs.
Orchard Park 60 1,138 2,115 3,253 896 1982 5-40 yrs.
Park West 880 33,630 18,768 53,876 72,644 27,549 1970/71/72 5-40 yrs.
Parkwood 296 12,428 7,667 12,825 20,492 5,250 1974 5-40 yrs.
Rancho San Joaquin 368 16,766 7,910 28,446 36,356 13,696 1976 5-40 yrs.
San Carlo 354 2,751 26,002 28,753 6,605 1989 5-40 yrs.
San Leon 248 12,245 1,751 14,560 16,311 4,845 1987 5-40 yrs.
San Marco 426 24,061 2,922 24,400 27,322 6,899 1988 5-40 yrs.
San Marino 200 9,741 1,399 11,602 13,001 4,082 1986 5-40 yrs.
San Mateo 283 1,462 18,675 20,137 4,330 1990 5-40 yrs.
San Paulo 382 26,324 1,930 26,886 28,816 3,317 1993 5-40 yrs.
San Remo 248 13,681 1,792 14,332 16,124 4,849 1986/88 5-40 yrs.
Santa Clara 378 3,761 30,996 34,757 2,470 1996 5-40 yrs.
Santa Rosa 368 3,277 27,550 30,827 2,335 1996 5-40 yrs.
Stanford Court 320 13,725 2,202 14,260 16,462 5,592 1985 5-40 yrs.
The Parklands 121 6,102 68 7,214 7,282 2,511 1983 5-40 yrs.
Turtle Rock Canyon 217 18,585 1,889 20,108 21,997 4,359 1991 5-40 yrs.
Turtle Rock Vista 252 13,178 6,327 13,471 19,798 5,576 1976/77 5-40 yrs.
Villa Coronado 513 5,842 38,069 43,911 3,302 1996 5-40 yrs.
Windwood Glen 196 9,744 1,266 9,719 10,985 3,422 1985 5-40 yrs.
Windwood Knoll 248 1,111 11,815 12,926 4,068 1983 5-40 yrs.
Woodbridge Oaks 120 832 6,832 7,664 2,398 1983 5-40 yrs.
Woodbridge Pines 220 8,332 5,755 10,607 16,362 4,345 1976 5-40 yrs.
Woodbridge Villas 258 4,353 9,234 13,587 3,978 1982 5-40 yrs.
Woodbridge Willows 200 9,549 1,421 11,501 12,922 5,161 1984 5-40 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
9,415 329,060 105,445 566,277 671,722 174,591
- ------------------------------------------------------------------------------------------------------------------------------------
NEWPORT BEACH, CALIFORNIA
Bayport 104 4,787 3,146 4,249 7,395 1,818 1971 5-40 yrs.
Bayview 64 3,456 2,353 2,939 5,292 1,291 1971 5-40 yrs.
Baywood 388 20,651 10,809 20,496 31,305 8,106 1973/84 5-40 yrs.
Mariner Square 114 5,542 392 5,145 5,537 3,365 1969 5-40 yrs.
Newport North 570 37,554 8,849 31,417 40,266 10,810 1986 5-40 yrs.
Newport Ridge 512 9,542 45,094 54,636 3,283 1996 5-40 yrs.
Promontory Point 520 35,683 18,775 41,566 60,341 17,480 1974 5-40 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
2,272 107,673 53,866 150,906 204,772 46,154
- ------------------------------------------------------------------------------------------------------------------------------------
TUSTIN, CALIFORNIA
Rancho Alisal 356 20,400 3,558 20,029 23,587 6,446 1988/91 5-40 yrs.
Rancho Maderas 266 19,160 1,144 16,291 17,435 4,184 1989 5-40 yrs.
Rancho Mariposa 238 12,597 683 16,290 16,973 3,038 1992 5-40 yrs.
Rancho Monterey 436 6,823 33,994 40,817 2,485 1996 5-40 yrs.
Rancho Tierra 252 19,407 1,215 16,505 17,720 4,372 1989 5-40 yrs.
Sierra Vista 306 2,318 22,808 25,126 4,133 1992 5-40 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
1,854 71,564 15,741 125,917 141,658 24,657
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES STABILIZED
FOR ALL OF 1997 13,541 508,297 175,052 843,100 1,018,152 245,402
- ------------------------------------------------------------------------------------------------------------------------------------
PROPERTIES STABILIZED OR ACQUIRED
DURING 1997:
Santa Maria (Irvine) 227 3,343 19,289 22,632 588 1997 5-40 yrs.
Baypointe (Newport Beach) 300 4,190 28,818 33,008 755 1997 5-40 yrs.
Villas of Renaissance
(San Diego County) 923 23,075 104,390 127,465 1,387 1992 5-40 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES STABILIZED OR
ACQUIRED DURING 1997 1,450 30,608 152,497 183,105 2,731
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STABILIZED PORTFOLIO 14,991 $ 508,297 $ 205,660 $ 995,597 $ 1,201,257 $ 248,132
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at December 31, 1997(a)(b)
---------------------------------
Date Depreci-
Number of Encum- Buildings and Accumulated of Com- able
Apartment Community Name (Location) Units brances(c) Land (d) Improvements Total Depreciation pletion Life(e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DELIVERED UNITS IN PROJECTS UNDER
DEVELOPMENT
The Colony (Newport Beach) 81 $ 1,166 $ 13,408 $ 14,574 $ 25 5-40 yrs.
Rancho Santa Fe (Tustin) 36 971 3,547 4,518 3 5-40 yrs.
Santa Rosa II (Irvine) 28 890 2,765 3,655 4 5-40 yrs.
Other 379 379 80
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DELIVERED UNITS 145 3,027 20,099 23,126 113
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STABILIZED AND DELIVERED 15,136 508,297 208,687 1,015,696 1,224,383 248,245
- ------------------------------------------------------------------------------------------------------------------------------------
UNITS UNDER DEVELOPMENT
The Colony (Newport Beach) 164 2,379 23,939 26,318
Rancho Santa Fe (Tustin) 280 7,437 17,338 24,775
Santa Rosa II (Irvine) 179 5,109 13,361 18,470
The Hamptons (Silicon Valley) 342 15,000 20,033 35,033
Sonoma (Irvine) 196 5,697 2,275 7,972
Brittany (Irvine) 393 10,325 1,855 12,180
Stonecrest (San Diego County) 326 9,475 199 9,674
Avventura (San Diego County) 232 7,800 666 8,466
Other 5,536 5,536
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL UNITS UNDER DEVELOPMENT 2,112 63,222 85,202 148,424
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 17,248 $508,297 $271,909 $1,100,898 $1,372,807 $248,245
====================================================================================================================================
</TABLE>
Notes:
(a) The aggregate cost basis of land and buildings before accumulated
depreciation for federal income tax purposes is approximately $1,051,835
(unaudited).
(b) The gross amount at which buildings and improvements are carried represent
historical cost amounts incurred in the development of the projects and
capital improvements incurred subsequent to the completion of
construction. Prior to the IAC's December 1993 initial public offering,
the gross land, buildings and improvements amounts represent The Irvine
Company's (i.e. the Predecessor's) historical cost basis.
(c) Encumbrances represent debt secured by deeds of trust.
(d) Land acquired from The Irvine Company is recorded at cost based on the
purchase price.
(e) Estimated useful lives are five to seven years for furniture and fixtures,
five to twenty years for improvements and forty years for buildings.
A summary of activity of real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
Real Estate 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $1,084,234 $1,005,633 $869,756
Additions:
Through cash expenditures 252,668 66,857 124,368
Through assumption of tax-exempt
assessment district debt 2,771 4,184
Through issuance of Operating
Partnership units 35,905 8,973 7,325
- -------------------------------------------------------------------------------------------------------
Balance at end of year $1,372,807 $1,084,234 $1,005,633
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
Accumulated Depreciation 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $219,193 $192,106 $169,039
Charges to depreciation expense 29,052 27,087 23,067
- -------------------------------------------------------------------------------------------------------
Balance at end of period $248,245 $219,193 $192,106
- -------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1.1 Agreement and Plan of Merger dated as of March 20, 1996 between
IAC and Irvine Apartment Communities, Inc., a Delaware
corporation (incorporated by reference to Exhibit 2.1 of IAC's
Registration Statement on Form 8-B, filed with the Securities and
Exchange Commission on April 30, 1996 ("IAC's Form 8-B")).
2.2 Purchase and Sale Agreement and Joint Escrow Instructions dated
April 18, 1997 by and between Aoki Construction (CA) Co., Ltd.
and the Operating Partnership (incorporated by reference to
Exhibit 2.1 of the Current Report on Form 8-K of IAC and the
Operating Partnership filed on August 6, 1997).
3.1 Articles of Amendment and Restatement of IAC (incorporated by
reference to Exhibit 3.1 of IAC's Form 8-B).
3.2 Articles of Merger dated May 2, 1996 between IAC and Irvine
Apartment Communities, Inc., a Delaware corporation (incorporated
by reference to Exhibit 14 of Amendment No. 5 to Schedule 13D
filed on July 15, 1996 by The Irvine Company, TIC Investment
Company A, TIC Investment Company C and Donald L. Bren).
3.3 Amended Bylaws of IAC (incorporated by reference to Exhibit 3.2
of IAC's Form 8-B).
3.4 Specimen of Certificate Representing Shares of Common Stock
(incorporated by reference to Exhibit 3.3 of IAC's Form 8-B).
3.5 Second Amended and Restated Agreement of Limited Partnership of
Irvine Apartment Communities, L.P. dated January 20, 1998.
3.6 Designation Instrument dated January 20, 1998 Relating to Series
A Preferred L.P. Units of the Operating Partnership.
4.1 Indenture dated as of October 1, 1997 between the Operating
Partnership and First Trust of California, National Association,
as Trustee (the "Trustee") (incorporated by reference to Exhibit
4.1 of the Current Report on Form 8-K of IAC and the Operating
Partnership filed on October 1, 1997 (the "October 1997 Form
8-K")).
4.2 Supplemental Indenture No. 1 dated as of October 1, 1997,
relating to the Operating Partnership's 7% Notes due 2007,
between the Operating Partnership and the Trustee (incorporated
by reference to Exhibit 4.2 of the October 1997 Form 8-K).
4.3 Form of Trust Preferred Security (included in Exhibit 4.5).
4.4 Amended and Restated Declaration of Trust dated January 20, 1998
of IAC Capital Trust.
4.5 Certificate of Terms dated January 20, 1998 Relating to Series A
Preferred Securities of IAC Capital Trust.
10.1 Purchase and Sale Agreement and Joint Escrow Instructions dated
April 18, 1997 by and between Aoki Construction (CA) Co., Ltd.
and the Operating Partnership (see Exhibit 2.2).
10.2 Lease Agreement (incorporated by reference to Exhibit 10.2 of the
Annual Report on Form 10-K of IAC for the year ended December 31,
1993 ("IAC's 1993 Form 10-K").
10.3 Employment Agreement with Senior Vice President, Chief Financial
Officer and Secretary.
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.4 Miscellaneous Rights Agreement among IAC and the persons named
therein (incorporated by reference to Exhibit 10.4 of IAC's Form
8-B).
10.4.1 Amendment No. 1 to the Miscellaneous Rights Agreement
(incorporated by reference to Exhibit 10.4.1 of the Quarterly
Report on Form 10-Q of IAC and the Operating Partnership for the
quarter ended September 30, 1997 (the "1997 Third Quarter Form
10-Q")).
10.4.2 Amendment No. 2 to the Miscellaneous Rights Agreement.
10.5 Administrative Services Agreement (incorporated by reference to
Exhibit 10.5 of IAC's 1993 Form 10-K).
10.5.1 Amendment and Extension to the Administrative Services Agreement
(incorporated by reference to Exhibit 10.5.1 of the Annual Report
on Form 10-K of IAC for the year ended December 31, 1994).
10.6 Exclusive Land Rights and Non-Competition Agreement (incorporated
by reference to Exhibit 10.6 of IAC's 1993 Form 10-K).
10.6.1 Amendment No. 1 to the Exclusive Land Rights and Non-Competition
Agreement (incorporated by reference to Exhibit 10.6.1 of the
Quarterly Report on Form 10-Q of IAC for the quarter ended June
30, 1995 ("IAC's 1995 Second Quarter Form 10-Q")).
10.6.2 Amendment No. 2 to the Exclusive Land Rights and Non-Competition
Agreement (incorporated by reference to Exhibit 10.6.2 of IAC's
1995 Second Quarter Form 10-Q).
10.6.3 Amendment No. 3 to the Exclusive Land Rights and Non-Competition
Agreement (incorporated by reference to Exhibit 10.6.3 of IAC's
Form 8-B).
10.6.4 Amendment No. 4 to the Exclusive Land Rights and Non-Competition
Agreement (incorporated by reference to Exhibit 10.6.4 of the
1997 Third Quarter Form 10-Q).
10.6.5 Amendment No. 5 to the Exclusive Land Rights and Non-Competition
Agreement.
10.7 Contribution Agreement and Escrow Instructions Agreement
(incorporated by reference to Exhibit 10.7 of IAC's 1993 Form
10-K).
10.8 Irvine Apartment Communities, Inc. 1993 Stock Option Plan for
Directors (incorporated by reference to Exhibit 10.8 of IAC's
1993 Form 10-K).
10.9 Irvine Apartment Communities, Inc. 1993 Long-Term Stock Incentive
Plan (incorporated by reference to Exhibit 10.9 of IAC's 1993
Form 10-K).
10.10 Irrevocable Trust Agreement (incorporated by reference to Exhibit
10.10 of IAC's 1993 Form 10-K).
10.11 Revolving Credit Agreement dated as of June 27, 1997
(incorporated by reference to Exhibit 10.11 of the Quarterly
Report on Form 10-Q of IAC and the Operating Partnership for the
quarter ended June 30, 1997 (the "1997 Second Quarter Form
10-Q")).
10.12 Indenture of Trust for Tax-Exempt Mortgage Bond Financing
(incorporated by reference to Exhibit 10.13 of IAC's 1995 Second
Quarter Form 10-Q).
10.13 Employment Agreement with Chief Executive Officer (incorporated
by reference to Exhibit 10.13 of the 1997 Second Quarter Form
10-Q).
10.14 Irvine Apartment Communities, Inc. 1996 Long-Term Stock Incentive
Plan (incorporated by reference to Exhibit 10.14 of IAC's Form
8-B).
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.15 Employment Agreement with Senior Vice President, President,
Irvine Ranch Division.
10.16 Severance Agreement with former Chief Executive Officer
(incorporated by reference to Exhibit 10.16 of IAC's 1996 Form
10-K).
12 The Company's ratio of earnings to fixed charges for the year
ended December 31, 1997.
13 Portions of IAC's Annual Report to Shareholders for the year
ended December 31, 1997.
21.1 Subsidiaries of IAC.
21.2 Subsidiaries of the Operating Partnership.
23.1 Opinion of Ernst & Young LLP on Schedule III (with respect to
Irvine Apartment Communities, Inc.).
23.2 Consent of Ernst & Young LLP (with respect to Irvine Apartment
Communities, Inc.).
23.3 Consent of Ernst & Young LLP (with respect to Irvine Apartment
Communities, L.P.).
27.1 Financial Data Schedule for the Company (only included in
electronically-filed document).
27.2 Financial Data Schedule for the Operating Partnership (only
included in electronically-filed document).
99 The text of the Notice and Proxy Statement for IAC's 1998 Annual
Meeting of Shareholders (incorporated by reference to the Notice
and Proxy Statement for the Annual Meeting of Shareholders of IAC
to be held on May 7, 1998).
</TABLE>
REPORTS ON FORM 8-K
IAC did not file any reports on Form 8-K during the fourth quarter of
1997. The Operating Partnership filed one report on Form 8-K during the fourth
quarter of 1997, for the purpose of filing copies of the Indenture, Supplemental
Indenture and Underwriting Agreement executed in connection with the issuance of
the Operating Partnership's 7% Notes due 2007. This report on Form 8-K was filed
on October 1, 1997.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IRVINE APARTMENT COMMUNITIES, INC.
Date: March 27, 1998 By: /s/ JAMES E. MEAD
------------------------------
James E. Mead
Senior Vice President,
Chief Financial Officer and
Secretary
24
<PAGE> 25
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DONALD BREN Chairman of the Board of Directors March 27, 1998
- -----------------------------
Donald Bren
/s/ ANTHONY M. FRANK Director March 27, 1998
- -----------------------------
Anthony M. Frank
/s/ JOHN F. GRUNDHOFER Director March 27, 1998
- -----------------------------
John F. Grundhofer
/s/ BOWEN H. MCCOY Director March 27, 1998
- -----------------------------
Bowen H. McCoy
/s/ WILLIAM H. MCFARLAND President and Chief Executive Officer March 27, 1998
- ----------------------------- and Director
William H. McFarland
/s/ MICHAEL D. MCKEE Director March 27, 1998
- -----------------------------
Michael D. McKee
/s/ JACK W. PELTASON Director March 27, 1998
- -----------------------------
Jack W. Peltason
/s/ JOHN F. SEYMOUR, JR. Director March 27, 1998
- -----------------------------
John F. Seymour, Jr.
/s/ RAYMOND L. WATSON Director March 27, 1998
- -----------------------------
Raymond L. Watson
/s/ JAMES E. MEAD Senior Vice President, March 27, 1998
- ----------------------------- Chief Financial Officer and
James E. Mead Secretary (Principal Financial Officer)
/s/ SHAWN HOWIE Vice President, March 27, 1998
- ----------------------------- Corporate Finance and Controller
Shawn Howie (Principal Accounting Officer)
</TABLE>
25
<PAGE> 26
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IRVINE APARTMENT COMMUNITIES, L.P.
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in Partners' Capital F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Report of Independent Auditors F-18
Schedule III - Consolidated Real Estate and Accumulated
Depreciation F-19
</TABLE>
F-1
<PAGE> 27
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
December 31,
(in thousands) 1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land $ 208,687 $ 176,070
Buildings and improvements 1,015,696 849,924
---------------------------------------------------------------------------
1,224,383 1,025,994
Accumulated depreciation (248,245) (219,193)
---------------------------------------------------------------------------
976,138 806,801
Under development, including land 148,424 58,241
---------------------------------------------------------------------------
1,124,562 865,042
Cash and cash equivalents 4,624 3,205
Restricted cash 1,464 1,376
Deferred financing costs, net of
accumulated amortization of $10,659
in 1997 and $8,290 in 1996 19,079 20,187
Other assets 13,948 11,188
---------------------------------------------------------------------------
$1,163,677 $ 900,998
===========================================================================
LIABILITIES
Mortgages and notes payable
Tax-exempt mortgage bond financings $ 325,644 $ 329,248
Conventional mortgage financings 132,256 134,761
Mortgage notes payable to The Irvine Company 50,397 51,227
Tax-exempt assessment district debt 21,544 21,828
Line of credit 75,000 16,000
Unsecured notes payable 99,222
---------------------------------------------------------------------------
704,063 553,064
Accounts payable and accrued liabilities 30,689 21,496
Security deposits 7,698 6,094
---------------------------------------------------------------------------
742,450 580,654
---------------------------------------------------------------------------
PARTNERS' CAPITAL
44,820 and 40,848 partnership units outstanding
at December 31, 1997 and 1996, respectively
General Partner, 19,901 and 18,556 partnership
units outstanding at December 31, 1997 and
1996, respectively 210,920 180,017
Limited Partners, 24,919 and 22,292 partnership
units outstanding at December 31, 1997 and
1996, respectively 210,307 140,327
---------------------------------------------------------------------------
421,227 320,344
---------------------------------------------------------------------------
$1,163,677 $ 900,998
===========================================================================
</TABLE>
See accompanying notes.
F-2
<PAGE> 28
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Years Ended December 31,
(in thousands, except per unit amounts) 1997 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Rental income $181,902 $154,925 $133,678
Other income 4,203 3,162 2,079
Interest income 840 611 411
-----------------------------------------------------------------------------------
186,945 158,698 136,168
-----------------------------------------------------------------------------------
EXPENSES
Property expenses 39,370 33,859 31,761
Real estate taxes 15,013 13,496 12,002
Property management fees 5,186 4,502 3,893
Interest expense, net 30,368 29,506 25,894
Amortization of deferred financing costs 2,369 2,627 8,510
Depreciation and amortization 29,309 27,239 23,143
General and administrative 6,747 6,277 5,909
-----------------------------------------------------------------------------------
128,362 117,506 111,112
-----------------------------------------------------------------------------------
Income before extraordinary item 58,583 41,192 25,056
Extraordinary item - charge related to
debt extinguishment (23,427)
-------------------------------------------------------------------------------------
NET INCOME $ 58,583 $ 41,192 $ 1,629
=====================================================================================
ALLOCATION OF NET INCOME (LOSS):
General Partner $ 26,404 $ 18,746 $ 8,465
Limited Partners $ 32,179 $ 22,446 $ (6,836)
===================================================================================
EARNINGS PER UNIT:
Basic $ 1.34 $ 1.06 $ 0.05
Diluted $ 1.34 $ 1.05 $ 0.05
===================================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 29
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES
IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(in thousands) General Partner Limited Partners Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PARTNERS' CAPITAL
Balance at January 1, 1995 $ 81,753 $ 109,296 $ 191,049
Net income 8,465 (6,836) 1,629
Contributions 83,454 33,200 116,654
Distributions (18,239) (26,527) (44,766)
-------------------------------------------------------------------------------------------
Balance at December 31, 1995 155,433 109,133 264,566
Net income 18,746 22,446 41,192
Contributions 31,385 39,327 70,712
Distributions (25,547) (30,579) (56,126)
-------------------------------------------------------------------------------------------
Balance at December 31, 1996 180,017 140,327 320,344
Net income 26,404 32,179 58,583
Contributions 33,384 73,004 106,388
Distributions (28,885) (35,203) (64,088)
-------------------------------------------------------------------------------------------
Balance at December 31, 1997 $210,920 $210,307 $421,227
===========================================================================================
PARTNERSHIP UNITS OUTSTANDING
Balance at January 1, 1995 11,800 18,447 30,247
Additional partnership units issued 5,175 1,950 7,125
-------------------------------------------------------------------------------------------
Balance at December 31, 1995 16,975 20,397 37,372
Additional partnership units issued 1,581 1,895 3,476
-------------------------------------------------------------------------------------------
Balance at December 31, 1996 18,556 22,292 40,848
Additional partnership units issued 1,345 2,627 3,972
-------------------------------------------------------------------------------------------
Balance at December 31, 1997 19,901 24,919 44,820
-------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-4
<PAGE> 30
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Years Ended December 31,
(in thousands) 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 58,583 $ 41,192 $ 1,629
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary item - charge related to debt extinguishment 23,427
Amortization of deferred financing costs 2,369 2,627 8,510
Depreciation and amortization 29,309 27,239 23,143
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Restricted cash (88) (195) (150)
Other assets (3,042) (104) (4,882)
Accounts payable and accrued liabilities 5,972 1,308 3,147
Security deposits 1,604 970 579
----------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 94,707 73,037 55,403
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets (5,041) (4,766) (4,520)
Capital investments in real estate assets (244,517) (61,850) (123,698)
----------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (249,558) (66,616) (128,218)
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under lines of credit 202,000 78,900 143,344
Payments on lines of credit (143,000) (84,900) (127,600)
Proceeds from issuance of unsecured notes payable 99,208
Proceeds from tax-exempt mortgage bond financings
and notes payable 334,190
Payments on tax-exempt mortgage bond financings (325,845)
Principal payments (7,224) (7,101) (5,676)
Additions to deferred financing costs (1,261) (9,237)
Contributions from partners 70,635 61,619 109,329
Distributions to partners (64,088) (56,126) (44,766)
----------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 156,270 (7,608) 73,739
----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,419 (1,187) 924
Cash and Cash Equivalents at Beginning of Year 3,205 4,392 3,468
----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,624 $ 3,205 $ 4,392
==========================================================================================================
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized $ 28,309 $ 29,644 $ 25,165
Tax-exempt assessment district debt assumed $ 2,771 $ 4,184
==========================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 31
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per unit amounts)
- --------------------------------------------------------------------------------
NOTE 1-- ORGANIZATION AND BASIS OF PRESENTATION
Irvine Apartment Communities, L.P., a Delaware limited partnership (the
"Partnership") was formed on November 15, 1993. In connection with an initial
public offering (the "Offering") of common shares on December 8, 1993, Irvine
Apartment Communities, Inc. (the "General Partner") obtained a general
partnership interest in and became the sole managing general partner of the
Partnership. The Irvine Company transferred 42 apartment communities and a 99%
interest in a limited partnership which owns one apartment community to the
Partnership. The Partnership's management and operating decisions are under the
unilateral control of the General Partner. All management powers over the
business and affairs of the Partnership are vested exclusively in the General
Partner. No limited partner of the Partnership has any right to exercise control
or management power over the business and affairs of the Partnership. At
December 31, 1997, the General Partner had a 44.4% general partnership interest
in the Partnership and the limited partners had a 55.6% limited partnership
interest in the Partnership, with The Irvine Company and certain of its
affiliates owning a 55.4% limited partnership interest. In February 1997, the
Partnership acquired the assets of Thompson Residential Company, Inc. The
purchase price was paid by the issuance of 74,523 limited partnership units in
the Partnership. At December 31, 1997, Thompson Residential Company, Inc. had a
0.2% limited partnership interest in the Partnership.
The Partnership is engaged in the operation and development of
apartment communities in Orange County, California and, beginning in 1997, other
locations in California. As of December 31, 1997, the Partnership owned 59
apartment communities representing 15,136 apartment units and had 2,112 units
under construction or development (collectively, the "Properties"). The
Partnership broke ground on its first apartment community outside of Orange
County, located in Northern California's Silicon Valley, in May 1997. In June
1997, the Partnership acquired a 923-unit apartment community in the La Jolla
region of San Diego County. The Partnership utilizes independent third party
property management and construction management firms. Until July 31, 2020, the
Partnership has the exclusive right, but not the obligation, to acquire land
from The Irvine Company for development of additional apartment communities on
the Irvine Ranch.
IAC Capital Trust, a Delaware business trust (the "Trust"), was formed
on October 31, 1997. The Trust is a limited purpose financing vehicle
established by the General Partner and the Partnership. The Trust exists for the
sole purpose of issuing preferred securities and investing the proceeds thereof
in Preferred Limited Partner Units of the Partnership.
Profits and losses are generally allocated to the General Partner and
to the limited partners based upon their respective ownership interests in the
Partnership. The partnership agreement provides for the allocation of certain
costs to The Irvine Company. As of December 31, 1995, all such allocations had
been completed.
The accompanying financial statements include the consolidated accounts
of the Partnership and its financially controlled subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation.
Under the terms of the partnership agreement, all costs incurred by the
General Partner relating to the ownership of interests in and operation of the
Partnership, including the compensation of its officers and employees, stock
incentive plans, director fees and the costs and expenses of being a public
company, are reimbursed by the Partnership. In addition, The Irvine Company has
the right, but not the obligation, to match on the same terms and conditions any
capital contributions made by the General Partner based on the pro rata
ownership interest at the time of such contribution.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
December 31, 1997 and 1996, and the revenues and expenses for the three years
ended December 31, 1997. Actual results could differ from those estimates.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION: Real estate assets, which are held as
long-term investments, are stated at cost less accumulated depreciation.
Impairment losses on long-lived assets used in operations are recorded when
events and circumstances indicate that the assets are impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts. As of December 31, 1997, no impairment losses have been
recorded. Land and infrastructure costs are allocated to properties based on
relative fair value. Costs related to the development and construction of
properties are capitalized as incurred. Interest and property taxes
F-6
<PAGE> 32
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
are capitalized to apartment communities which are under active development.
When a building within a community under construction is completed and held
available for occupancy, the related costs are expensed.
Repair and maintenance expenditures are expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their useful
lives. Depreciation is computed on a straight-line basis over the useful lives
of the properties (principally forty years for buildings; twenty years for
siding, roofs and balconies; fifteen years for plumbing and air conditioning
equipment; ten years for pools, tennis courts, parking lots and driveways; and
five to ten years for furniture and fixtures).
CASH AND CASH EQUIVALENTS: The Partnership considers all highly liquid
investments with a maturity when purchased of three months or less to be cash
equivalents.
RESTRICTED CASH: Restricted cash is comprised of reserve accounts for capital
replacements, property taxes, and insurance. These restricted funds are subject
to supervision and approval by a lender or a government agency. The terms of the
contract with the government agency contain certain restrictions concerning
operating policies, rental charges, operating expenditures, distributions to
owners and other matters.
DEFERRED FINANCING COSTS: Costs incurred in obtaining long-term financing or
costs to buy down or hedge interest costs are deferred and amortized over the
term of the related debt agreements using the effective interest method.
REVENUE RECOGNITION: The Partnership leases apartment units to a diverse
resident base for terms of one year or less. Credit investigations are performed
for all prospective residents and security deposits are also obtained. Resident
receivables are evaluated for collectability each month. Rental revenue is
recognized on an accrual basis as it is earned over the life of the lease.
Interest income is recorded as earned.
INTEREST EXPENSE: Interest rates are substantially fixed for specified periods
through interest rate swaps and buy-down agreements for certain debt
instruments. These financial instruments are entered into as a hedge against the
interest exposure from variable rate debt. The differences paid or received on
swaps and related agreements are included in interest expense as yield
adjustments.
INCOME TAXES: The Partnership's taxable income is reportable by its partners.
Accordingly, no provision has been made for federal income taxes in the
accompanying statements of operations.
PER UNIT DATA: All earnings per unit amounts for all periods reflect basic and
diluted earnings per unit and have been restated from the previous standard of
primary and fully diluted earnings per unit. See Note 10 for additional
information regarding basic and diluted earnings per unit.
RECLASSIFICATIONS: Certain amounts in the 1996 and 1995 financial statements
have been reclassified to conform with financial statement presentations in
1997.
NOTE 3 -- MORTGAGES AND NOTES PAYABLE
TAX-EXEMPT MORTGAGE BOND FINANCINGS: In May 1995, the Partnership refinanced all
$324,816 of its outstanding tax-exempt mortgage debt. As a result of a new
30-year refunding agreement, which is backed by credit and liquidity support
from the Federal National Mortgage Association ("Fannie Mae"), the Partnership
obtained tax-exempt mortgage bond financings of $334,190 maturing in June 2025.
Standard & Poor's Rating Group assigned ratings of AAA/A-1+ to the bonds based
on the collateral agreement with Fannie Mae. In connection with the refinancing
transaction, the Partnership recorded an extraordinary charge of $23,427 to
write off deferred financing costs related to the debt that was refinanced.
The tax-exempt financings represent loans payable that are
collateralized by twenty-three properties with a net book value of $273,723 as
of December 31, 1997. Monthly principal and interest payments are made to a
trustee, which in turn pays the bondholders when interest is due. The bonds are
remarketed periodically and bear interest at short-term floating rates. The
floating rates have been fixed through interest rate swap agreements. (See
Interest Rate Swap Agreements.) Principal payments are amortized over a 30-year
period and are held in a principal payment fund. The tax-exempt mortgage bond
financings, before giving effect to the swap agreements, had an average floating
interest rate inclusive of fees of 4.85% in December 1997.
CONVENTIONAL MORTGAGE FINANCINGS: Conventional mortgages are collateralized by
apartment communities having a net book value of $146,025 as of December 31,
1997. The mortgages are generally due in monthly installments and mature at
various dates through
F-7
<PAGE> 33
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
2018. Prior to the Offering, interest rates were fixed at rates which ranged
from 7.75% to 9.63%, with a weighted average rate of 8.69%. In connection with
the Offering, the interest rates were adjusted to market rates for specified
periods of time and currently range from 6.31% to 8.30%. As of December 31,
1997, the weighted average interest rate was 7.12%. Including the amortization
of deferred financing costs the all-in interest rate was 8.41%. The interest
reduction periods expire prior to or at the loan maturity dates and range from
2000 to 2008.
MORTGAGE NOTES PAYABLE TO THE IRVINE COMPANY: Two of the Partnership's apartment
communities are financed by mortgage notes payable to The Irvine Company. These
mortgage notes totaled $50,397 and $51,227 at December 31, 1997 and 1996,
respectively. The mortgage notes are collateralized by all-inclusive trust deeds
on each of the apartment communities financed. They bore fixed interest rates of
5.75% at December 31, 1997, are fully amortizing and mature in 2015 and 2024.
Interest incurred on the mortgage notes payable to The Irvine Company totaled
$2,920, $2,966 and $3,010 for the years ended December 31, 1997, 1996 and 1995,
respectively. The mortgage notes payable to The Irvine Company "wrap around"
secured first trust deed notes payable to third party financial institutions.
The secured first trust deed notes totaled $50,651 and $51,363 as of December
31, 1997 and 1996, respectively.
TAX-EXEMPT ASSESSMENT DISTRICT DEBT: In conjunction with the purchase of land,
the Partnership assumed $2,771 in 1996 and $4,184 in 1995 in tax-exempt
assessment district debt which represents debt issued by municipal government
authorities to finance the construction of infrastructure and improvements. The
debt obligations are repaid by the Partnership through assessments.
LINE OF CREDIT: In June 1997, the Partnership renewed its $250 million unsecured
revolving credit facility. The credit facility has a term of three years and
currently bears interest at LIBOR plus 0.70% or prime. The interest rates under
the credit facility are adjusted up or down based on credit ratings on the
Partnership's senior unsecured long-term indebtedness. Under the credit
facility, the Partnership is able to borrow funds from the participating banks
through a competitive bid process to obtain a lower interest rate. At December
31, 1997, there were no outstanding borrowings under the credit facility priced
on a competitive bid basis. Borrowings under the credit facility, which are
guaranteed by the General Partner, are available to finance the Partnership's
ongoing rental property development, possible acquisitions and for general
working capital needs. The General Partner and the Partnership must comply with
certain affirmative and negative covenants, including limitations on
distributions, and the maintenance of certain net worth, cash flow and financial
ratios. At December 31, 1997, the General Partner and the Partnership were in
compliance with all of these covenants. As of December 31, 1997, $75 million was
outstanding and $175 million was available under the credit facility. In January
1998, the outstanding borrowings under the credit facility were repaid with the
proceeds of the preferred securities offering of the Trust as discussed in Note
14.
UNSECURED NOTES PAYABLE: In October 1997, the Partnership issued $100 million
aggregate principal amount of 7% senior unsecured notes (the "Notes") pursuant
to its shelf registration statement. The Notes are due on October 1, 2007. Net
proceeds from the offering of $97.9 million were used to repay indebtedness
under the Partnership's credit facility, which had been used to finance The
Villas of Renaissance acquisition. The Partnership was in compliance with all
covenant requirements at December 31, 1997.
INTEREST RATE SWAP AGREEMENTS: The Partnership uses interest rate swap
agreements to effectively convert its floating rate tax-exempt mortgage bond
financings to a fixed-rate basis, thus reducing the impact on future income of
fluctuations in interest rates. At December 31, 1997, the Partnership had
interest rate swap agreements on notional amounts totaling $325,644 under which
the Partnership pays fixed rates of interest and receives floating rates of
interest based on a municipal bond index that is reset weekly. The swap
agreements terminate from 2002 to 2007. The swap counterparties are all
financial institutions rated AAA by Standard & Poor's. The differences to be
paid or received are accrued and included in interest expense as a yield
adjustment and the related amount payable or receivable from counterparties is
included in accrued liabilities or other assets. Additionally, the Partnership
restructured several interest rate swaps related to the retired tax-exempt bonds
in May 1995. These transactions reduce the interest expense on tax-exempt
mortgage bond financings by approximately 30 basis points per year through 2001.
At December 31, 1997, the average fixed interest rate paid to the counterparties
was 5.09% and the average variable interest rate received was 3.85%. This
resulted in a net interest payable of $317 which was settled in January 1998.
Based on prevailing interest rates at December 31, 1997, the interest rate swap
agreements have a fair value of negative $10.4 million.
CAPITALIZED INTEREST: The Partnership capitalizes interest on projects actively
under development using qualifying asset balances and applicable weighted
average interest rates. The average qualifying asset balance for projects under
development was approximately $76.6 million, $40.0 million and $82.9 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Interest
capitalized was $5,704, $3,151 and $6,779 in 1997, 1996 and 1995, respectively.
Interest incurred totaled $36,072, $32,657 and $32,673 for the years ended
December 31, 1997, 1996 and 1995, respectively.
OTHER MATTERS: Mortgages and notes payable totaling $527,683 are subject to
prepayment penalties.
F-8
<PAGE> 34
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
MORTGAGES AND NOTES PAYABLE AT DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Expiration of
Outstanding Effective Interest Rate Interest Rate
Principal Interest Reduction After Maturity
Type of Debt Balance Rate Period Step-Up Date
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond financings $325,644 5.28% n/a n/a 6/25
- ------------------------------------------------------------------------------------------------------------
Conventional mortgage financings:
Bayport 4,787 6.91% 7/08 9.25% 7/18
Bayview 3,456 6.91% 7/08 9.25% 7/18
Baywood 20,651 6.91% 7/08 9.25% 7/18
Deerfield Phase I 7,343 6.57% 7/02 8.90% 7/08
Mariner Square 5,542 6.32% 9/00 8.50% 8/08
The Parklands 6,102 6.15% n/a n/a 4/04
Parkwood 12,428 6.31% 8/00 8.50% 7/08
Promontory Point 35,682 8.30% n/a n/a 8/00
Rancho Mariposa 12,597 7.75% n/a n/a 6/03
San Paulo 1,458 4.00% n/a n/a 1/13
San Paulo 700 3.00% n/a n/a 1/08
Turtle Rock Vista 13,178 6.31% 8/00 8.50% 7/08
Woodbridge Pines 8,332 6.91% 9/08 9.25% 8/18
- ------------------------------------------------------------------------------------------------------------
132,256 7.12% 7/08
- ------------------------------------------------------------------------------------------------------------
Mortgage notes payable to The Irvine
Company:
Park West 33,631 5.75% n/a n/a 7/24
Rancho San Joaquin 16,766 5.75% n/a n/a 1/15
- ------------------------------------------------------------------------------------------------------------
50,397 5.75% 5/21
- ------------------------------------------------------------------------------------------------------------
Tax-exempt assessment district debt:
Fixed rate 5,390 6.27% n/a n/a 8/18
Variable rate 16,154 4.30% n/a n/a 6/17
- ------------------------------------------------------------------------------------------------------------
21,544 4.79% 5/18
- ------------------------------------------------------------------------------------------------------------
Line of credit 75,000 6.76% n/a n/a 6/00
- ------------------------------------------------------------------------------------------------------------
Unsecured notes payable 99,222 7.10% 10/07
- ------------------------------------------------------------------------------------------------------------
Total/weighted average $704,063 6.06% 7/16
============================================================================================================
</TABLE>
SCHEDULED PRINCIPAL AMORTIZATION: MORTGAGES AND NOTES PAYABLE AT
DECEMBER 31, 1997 (dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Mortgage
Notes
Tax-Exempt Payable Tax-Exempt
Mortgage Conventional to The Assessment Unsecured Percentage
Year of Bond Mortgage Irvine District Line of Notes of Total
Maturity Financings Financings Company Debt Credit Payable Total Debt
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $ 3,876 $ 2,717 $ 879 $ 303 $ 7,775 1.1%
1999 4,165 2,958 931 326 8,380 1.2%
2000 4,478 36,754 986 522 $75,000 117,740 16.7%
2001 4,813 2,773 1,044 583 9,213 1.3%
2002 5,174 3,000 1,106 642 9,922 1.4%
Thereafter 303,138 84,054 45,451 19,168 $99,222 551,033 78.3%
- ------------------------------------------------------------------------------------------------------------
Total $325,644 $132,256 $50,397 $21,544 $75,000 $99,222 $704,063 100.0%
- ------------------------------------------------------------------------------------------------------------
Number of Loans 25 11 2 6 1 1 46
============================================================================================================
</TABLE>
F-9
<PAGE> 35
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for financial instruments
approximate their fair value except as discussed below. The fair values of the
conventional mortgage financings and the mortgage notes payable to The Irvine
Company are estimated using discounted cash flow analyses and the Partnership's
current estimated borrowing rates for similar types of borrowing arrangements.
The interest rate used in the fair value calculation ranges from 6.9% to 7.1%
based on the terms of the loan. As of December 31, 1997, the fair values of the
conventional mortgage financings and the mortgage notes payable to The Irvine
Company were $137,044 and $44,557, respectively. See Note 3 for a discussion of
the fair value of the interest rate swap agreements.
NOTE 5 -- PARTNERS' CAPITAL
In August 1995, the General Partner sold 5.175 million shares of common stock at
$17.25 per share. Concurrently, The Irvine Company, pursuant to its rights under
the partnership agreement, purchased 1.5 million partnership units at $17.25 per
unit. Such units are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations. The net proceeds from the two
transactions totaled $109,329. Proceeds of $80,100 were used to repay amounts
outstanding under construction and revolving lines of credit. The balance of
$29,229 was used to fund new construction.
In July 1996, the General Partner completed the sale of 1.49 million
shares of common stock at $20.125 per share. The proceeds from this offering of
$30.0 million together with proceeds from the sale of newly issued partnership
units to The Irvine Company totaled $60.0 million. Proceeds were used to repay
$43 million of debt outstanding under the revolving credit facility. The
remaining proceeds were used to fund ongoing development programs and for
general corporate purposes.
In February 1997, the General Partner sold 1.15 million shares of
common stock at $27.50 per share. Concurrently, The Irvine Company, pursuant to
its rights under the partnership agreement, purchased 1.39 million additional
partnership units at $26.06 per unit (which is equal to the public offering
price of the common stock less an amount equivalent to the underwriting
discount) which are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations. The proceeds from the two
transactions totaled $66 million and were used to repay all indebtedness
outstanding under the credit facility and for general corporate purposes,
including ongoing development activities on and off the Irvine Ranch.
In May 1997, the General Partner filed a shelf registration statement
with the Securities and Exchange Commission providing for the issuance from time
to time of up to $350 million of common stock, preferred stock, and warrants to
purchase common stock and preferred stock. This registration statement replaced
the General Partner's previous registration statement. The General Partner plans
to use the proceeds raised from any securities issued under its shelf
registration statement for general corporate purposes, including the development
of new apartment communities, acquisitions and the repayment of existing debt.
Availability under the General Partner's shelf registration statement was $350
million at December 31, 1997. Concurrently, the Partnership filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of debt securities. The
Partnership plans to use the proceeds raised from any securities issued under
its shelf registration statement for general corporate purposes, including the
development of new apartment communities, acquisitions and the repayment of
existing debt. Availability under the Partnership's shelf registration statement
was $250 million at December 31, 1997.
F-10
<PAGE> 36
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
RECONCILIATION OF PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
(in thousands, except percentages) Year Ended December 31, 1997 Year Ended December 31, 1996
- --------------------------------------------------------------------------------------------------------------
General The Irvine General The Irvine
Partner Company Other Total Partner Company Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 18,556 22,292 40,848 16,975 20,397 37,372
Stock options exercised and awards 156 156 77 77
issued
Dividend reinvestment plan and
additional cash investment plan 39 27 66 13 16 29
Common stock offerings and related
cash
contributions from The Irvine 1,150 1,394 2,544 1,491 1,491 2,982
Company
Acquisition of Thompson Residential 75 75
assets
Contributions of property by
The Irvine Company and certain of 1,131 1,131 388 388
its affiliates
- --------------------------------------------------------------------------------------------------------------
Balance at end of period 19,901 24,844 75 44,820 18,556 22,292 40,848
- --------------------------------------------------------------------------------------------------------------
Ownership interest at end of period 44.4% 55.4% 0.2% 100% 45.4% 54.6% 100%
==============================================================================================================
</TABLE>
NET INCOME (LOSS) ALLOCATION
<TABLE>
<CAPTION>
For the Years Ended December 31,
(dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Limited Partners:
Income allocated to
The Irvine Company and certain of its affiliates based on
their ownership interest $32,088 $22,446 $ 10,905
Income allocated to Thompson Residential Company, Inc.
based on its ownership interest 91
Specific allocations to The Irvine Company (17,741)
- -------------------------------------------------------------------------------------------------------------
32,179 22,446 (6,836)
General Partner:
Income allocated to Irvine Apartment Communities, Inc.
based on its ownership interest 26,404 18,746 8,465
- -------------------------------------------------------------------------------------------------------------
Net Income $58,583 $41,192 $ 1,629
=============================================================================================================
</TABLE>
Prior to December 31, 1995, the Partnership incurred debt
extinguishment costs and swap amortization costs that were allocated 100% to The
Irvine Company in accordance with the partnership agreement. As of December 31,
1995, all such allocations have been completed.
NOTE 6 -- ACQUISITION OF THOMPSON RESIDENTIAL ASSETS
In February 1997, the assets of Thompson Residential Company, Inc. ("TRC"), a
privately held, Northern California-based multi-family development company were
acquired for $2 million which was paid by the issuance of 74,523 limited
partnership units (exchangeable for common stock of the General Partner), using
the average closing price of the General Partner's common stock for the ten
trading days preceding the acquisition's closing date. In addition, TRC may be
paid up to an additional $2 million in cash or limited partnership units if an
apartment community (The Hamptons) achieves certain performance targets.
NOTE 7 -- ACQUISITION OF THE VILLAS OF RENAISSANCE
In June 1997, the Partnership acquired a 923-unit apartment community (The
Villas of Renaissance) located in the La Jolla region of north San Diego County
from an unrelated third party for $127 million. The purchase price was funded by
$118 million of borrowings under the Partnership's $250 million unsecured
revolving credit facility and $9 million from cash on hand.
F-11
<PAGE> 37
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
NOTE 8 -- LAND RIGHTS AGREEMENT WITH THE IRVINE COMPANY
The Partnership and The Irvine Company are parties to an exclusive land rights
and non-competition agreement (the "Land Rights Agreement"). This agreement,
which extends through July 31, 2020, provides the Partnership the exclusive
right, but not the obligation, to acquire additional land sites which have been
entitled for residential use and designated by The Irvine Company as ready for
apartment development in accordance with the Master Plan. The determination to
exercise an option with respect to a site is made solely by a majority of a
committee of independent directors of the General Partner (the "Independent
Directors Committee"), whose members are unaffiliated with The Irvine Company.
In addition, The Irvine Company and its chairman, Donald Bren, have agreed to
conduct their apartment community development and ownership activities on the
Irvine Ranch solely through the Partnership.
Under terms of the Land Rights Agreement, through July 31, 2000, the purchase
price for any apartment community sites acquired may be paid with either cash,
common stock or partnership units at the option of the Partnership. After July
31, 2000, the choice of consideration will revert to The Irvine Company.
NOTE 9 -- CERTAIN TRANSACTIONS WITH RELATED PARTIES
Substantially all costs incurred by the General Partner are borne by the
Partnership. Included in general and administrative expenses are charges from
The Irvine Company pursuant to an administrative service agreement covering
services for risk management, income taxes, human resources and other services
of $132 for the year ended December 31, 1997. The amounts for the corresponding
periods in 1996 and 1995 were $108 and $106, respectively. The Irvine Company
and the Partnership jointly purchase employee health care insurance and property
and casualty insurance. In addition, the Partnership incurred rent totaling
$384, $349 and $270 for the years ended December 31, 1997, 1996 and 1995,
respectively, related to leases with The Irvine Company that expire in 1998. For
the years ended December 31, 1997 and 1996, The Irvine Company contributed $766
and $354, respectively, or the maximum allowable in connection with stock
issuances under the dividend reinvestment and additional cash investment plan.
In March 1995, the Partnership acquired a 512-unit development site
known as Newport Ridge for $9,542 from The Irvine Company, pursuant to the Land
Rights Agreement between the Partnership and The Irvine Company. The General
Partner's board committee of independent directors approved the purchase in
accordance with the Land Rights Agreement. As partial financing for the
acquisition of the site, the Partnership elected to assume $4,184 of tax-exempt
assessment district debt. The balance of $5,358 was paid through the issuance of
336,432 additional partnership units in the Partnership to The Irvine Company.
The partnership units are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations.
In November 1995, the Partnership acquired a 300-unit development site
known as Baypointe from The Irvine Company, pursuant to the Land Rights
Agreement between the Partnership the The Irvine Company. The total purchase
price paid was $4,190, of which $2,223 was cash and $1,967 was paid through the
issuance of 113,372 additional partnership units in the Partnership to The
Irvine Company. The General Partner's board committee of independent directors
approved the purchase in accordance with the Land Rights Agreement. The
partnership units are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations.
In March 1996, the Partnership acquired a development site known as
Santa Maria for $3.3 million from The Irvine Company for the development of 227
rental units, pursuant to the Land Rights Agreement between the Partnership and
The Irvine Company. The General Partner's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement. As
partial financing for the site acquisition, the Partnership assumed $2.8 million
in tax-exempt assessment district debt. The balance of the purchase price was
paid through the issuance of 28,358 additional partnership units in the
Partnership to The Irvine Company. The partnership units are exchangeable for
common stock on a one for one basis, subject to adjustment and certain
limitations.
Concurrent with the General Partner's common stock offering in July
1996, The Irvine Company, pursuant to its rights under the partnership
agreement, purchased 1.49 million partnership units at a price of $20.125 per
unit (which is equal to the public offering price of common stock less an amount
equivalent to the underwriting discount) or a total of $30.0 million. These
units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations.
In July 1996, the Partnership acquired a development site known as The
Colony for $3.5 million from The Irvine Company for the development of 245
rental units pursuant to the Land Rights Agreement between the Partnership and
The Irvine Company. The General Partner's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement. Of
the total purchase price, $2.4 million was paid through the issuance of 115,544
additional partnership units in the Partnership to The Irvine Company. The
partnership units are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations.
F-12
<PAGE> 38
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
In December 1996, the Partnership acquired a development site known as
Santa Rosa II for $6.0 million from The Irvine Company for the development of
207 rental units pursuant to the Land Rights Agreement between the Partnership
and The Irvine Company. The General Partner's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement.
The purchase price was paid through the issuance of 244,857 additional
partnership units in the Partnership to The Irvine Company. The partnership
units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations.
In February 1997, the Partnership acquired a development site known as
Rancho Santa Fe for $8.4 million from The Irvine Company for the development of
316 rental units pursuant to the Land Rights Agreement between the Partnership
and The Irvine Company. The General Partner's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement.
The purchase price was paid through the issuance of 313,439 additional
partnership units in the Partnership to The Irvine Company. The partnership
units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations. Pursuant to the terms of the acquisitions, a
portion of the partnership units in the Partnership are subject to forfeiture if
the apartment community developed on the site does not achieve a 10% unleveraged
return on costs for the first twelve months following stabilized occupancy.
Concurrent with the General Partner's common stock offering in February
1997, The Irvine Company, pursuant to its rights under the partnership
agreement, purchased 1.39 million partnership units at a price of $26.06 per
unit (which is equal to the public offering price of the common stock less an
amount equivalent to the underwriting discount) or a total of $36.2 million.
These units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations.
In October 1997, the Partnership acquired a development site known as
Sonoma for $5.7 million from The Irvine Company for the development of 196
rental units pursuant to the Land Rights Agreement between the Partnership and
The Irvine Company. The General Partner's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement.
The purchase price was paid through the issuance of 179,433 additional
partnership units in the Partnership to the Irvine Company. The partnership
units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations. Pursuant to the terms of the acquisition, a
portion of the partnership units in the Partnership are subject to forfeiture if
the apartment community developed on the site does not achieve a 10% unleveraged
return on costs for the first twelve months following stabilized occupancy.
In December 1997, the Partnership acquired a development site known as
Stonecrest, located in San Diego County, for $9.5 million from an affiliate of
The Irvine Company for the development of 326 rental units. The General
Partner's board committee of independent directors approved the purchase. The
purchase price was paid through the issuance of 305,707 additional partnership
units in the Operating Partnership to an affiliate of The Irvine Company. Of the
partnership units issued, 199,011 are exchangeable for common stock on a one for
one basis and 106,696 partnership units are not exchangeable for common stock
absent approval of the shareholders of the General Partner.
In December 1997, the Partnership acquired a development site known as
Brittany for $10.3 million from The Irvine Company for the development of 393
rental units pursuant to the Land Rights Agreement between the Partnership and
The Irvine Company. The General Partner's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement.
The purchase price was paid through the issuance of 332,060 additional
partnership units in the Partnership to The Irvine Company. The partnership
units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations.
One of the General Partner's directors is chairman of a bank which
participates in the Partnership's credit facility. Based on the bank's
percentage participation in the credit facility, the Partnership estimates that
the amount of interest and fees paid to the bank totaled $279, $245 and $388 in
1997, 1996 and 1995, respectively.
F-13
<PAGE> 39
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
NOTE 10 - EARNINGS PER UNIT
The following table sets forth the computation of basic and diluted earnings per
unit which have been restated to comply with the new accounting requirements:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
For the years ended December 31,
(in thousands, except per unit data) 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per unit -
Net income $58,583 $41,192 $1,629
==========================================================================================================
Denominator:
Denominator for basic earnings per unit-weighted average
units outstanding 43,586 38,953 33,191
Effect of dilutive securities:
Stock plans 137 151 28
----------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per unit-
Adjusted weighted-average units after effect of
dilutive securities 43,723 39,104 33,219
==========================================================================================================
Basic earnings per unit:
Income before extraordinary item $1.34 $1.06 $0.75
Extraordinary item - charge related to debt extinguishment (0.70)
----------------------------------------------------------------------------------------------------------
Basic Earnings Per Unit $1.34 $1.06 $0.05
==========================================================================================================
Diluted earnings per unit:
Income before extraordinary item $1.34 $1.05 $0.75
Extraordinary item - charge related to debt extinguishment (0.70)
----------------------------------------------------------------------------------------------------------
Diluted Earnings Per Unit $1.34 $1.05 $0.05
==========================================================================================================
</TABLE>
Options to purchase 51,000 and 170,000 shares of the General Partner's common
stock, the cost of which is borne by the Partnership, were outstanding during
1997 and 1995, respectively, but were not included in the computation of diluted
earnings per unit because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
antidilutive.
In January 1998, the Trust issued 6.0 million of 8 1/4% Series A Preferred
Securities. The proceeds were used to purchase an equivalent amount of 8 1/4%
Series A Preferred Limited Partner Units in the Partnership. Income will be
allocated to the Series A Preferred Limited Partner Unit Holders at an annual
rate of 8 1/4%.
NOTE 11 -- STOCK PLANS
Under the terms of the partnership agreement, payments under the General
Partner's stock incentive plans are reimbursed by the Partnership.
EMPLOYEE STOCK OPTION PLAN: The General Partner has adopted long term stock
incentive plans that provide for awards of non-qualified or incentive stock
options, stock appreciation rights, performance awards, restricted stock,
restricted stock units and stock unit awards. The plans limit the number of
shares of common stock to be issued with respect to these awards to 5% of the
total partnership units and common stock outstanding from time to time. The
non-qualified stock options in the table below vest in equal installments over a
three-year period from the date of grant and expire ten years from the grant
dates.
F-14
<PAGE> 40
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
NON-QUALIFIED STOCK OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Number Exercise price
of Options Per share
- ----------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 189,000 $17.50
Granted 384,000 $15.88 to $16.13
Canceled (74,000) $16.13 to $17.50
- ----------------------------------------------------------------------------------
Outstanding at December 31, 1995 499,000 $15.88 to $17.50
Granted 10,000 $20.00
Exercised (66,667) $16.13 to $17.50
Canceled (33,333) $16.13
- ----------------------------------------------------------------------------------
Outstanding at December 31, 1996 409,000 $15.88 to $20.00
Granted 265,000 $26.63 to $29.81
Exercised (139,666) $15.88 to $17.50
Canceled (95,001) $15.88 to $26.88
- ----------------------------------------------------------------------------------
Outstanding at December 31, 1997 439,333 $15.88 to $29.81
==================================================================================
Vested and exercisable at December 31, 1997 122,665 $16.13 to $20.00
==================================================================================
</TABLE>
The restricted stock awards of the General Partner's President and Chief
Executive Officer vest over five years. The restricted stock performance awards
issued to other officers vest over a five-year period provided that the
Partnership meets certain financial targets.
PERFORMANCE AWARD TRANSACTIONS
<TABLE>
<CAPTION>
Number of Awards
- ------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1994 200,000
Granted 235,000
Canceled (110,000)
- ------------------------------------------------------------------------------
Outstanding at December 31, 1995 325,000
Granted 10,000
Issued (20,000)
Canceled (82,049)
- ------------------------------------------------------------------------------
Outstanding at December 31, 1996 232,951
Granted 96,500
Issued (62,951)
Canceled (105,710)
- ------------------------------------------------------------------------------
Outstanding at December 31, 1997 160,790
==============================================================================
Vested at December 31, 1997 17,290
==============================================================================
</TABLE>
The total number of shares available to be granted at December 31, 1997 under
these plans was 1,369,639.
DIRECTORS' STOCK OPTION PLAN: The 1993 Stock Option Plan for Directors was
established with 100,000 shares that may be granted to independent directors.
Grants of fully vested options to purchase 5,000 shares of common stock at the
market price on the grant date were made to each independent director
immediately following the Offering. Additionally, grants of fully vested options
to purchase 1,000 shares of common stock at the market price on the grant date
were made to each independent director immediately following each annual
shareholders' meeting beginning in 1995. These options are fully vested when
granted and are exercisable for ten years from the grant dates.
F-15
<PAGE> 41
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
DIRECTORS' OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Number Exercise Price
of Options Per Share
- ----------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 25,000 $17.44
Granted 5,000 $15.63
- ----------------------------------------------------------------------------
Outstanding at December 31, 1995 30,000 $15.63 to $17.44
Granted 5,000 $20.06
- ----------------------------------------------------------------------------
Outstanding at December 31, 1996 35,000 $15.63 to $20.06
Granted 5,000 $26.75
Exercised (7,000) $15.63 to $20.06
- ----------------------------------------------------------------------------
Outstanding at December 31, 1997 33,000 $15.63 to $26.75
============================================================================
Available for future grant 60,000
============================================================================
</TABLE>
EQUITY COMPENSATION PLANS: The Partnership applies APB Opinion 25 and related
interpretations in accounting for its equity compensation plans as described
above. Accordingly, no compensation cost has been recognized for its stock
option plans. Compensation cost for the General Partner's other stock-based
compensation plans has been determined utilizing the fair value of the award
over the service period. Had the Partnership applied FAS Statement 123 for
stock-based compensation it would result in net income and earnings per share
amounts that approximate the amounts reported. Under FAS Statement 123 the fair
value for options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1997,
1996 and 1995, respectively: risk-free interest rates of 6.43%, 6.46%, and
7.15%; dividend yields of 5.27%, 7.09% and 8.49%; volatility factors of the
expected market price of the General Partner's common stock of 0.184, 0.204 and
0.242; and a weighted average expected life of the options of 7 years.
NOTE 12 -- SAVINGS PLAN
Effective January 1, 1994, the General Partner implemented a defined
contribution 401(k) benefit plan covering substantially all employees who have
satisfied minimum age and service requirements. The Partnership matches employee
contributions up to 50%, within certain limits, which are accrued as incurred.
The Partnership also makes contributions to this plan for each participant,
generally equal to 3% of the participant's base salary. The aggregate cost of
these contributions by the Partnership was $125, $122 and $95 in 1997, 1996 and
1995, respectively.
NOTE 13 -- AGREEMENTS, COMMITMENTS AND CONTINGENCIES
MANAGEMENT AGREEMENTS: The Partnership has management agreements with
unaffiliated property management companies to maintain and manage the operations
of the properties. Management fees range from 2.5% to 3.25% of revenues
depending on the size of the property (resulting in a weighted average rate of
approximately 2.8% of revenues). These agreements are renewable annually and are
generally cancelable on 30 days' notice. Included in operating expenses are
costs incurred by the management companies on behalf of the Partnership.
LITIGATION: The Partnership is party to various legal actions which are
incidental to its business. Management believes that these actions will not have
a material adverse effect on the Partnership's consolidated financial position.
ASSESSMENT DISTRICTS: In some of the local jurisdictions within Orange County
where the Predecessor developed property, assessment districts were formed by
local governments to finance major infrastructure improvements. At December 31,
1997, the Partnership had $38.1 million of assessment district debt, of which
$21.5 million was reflected in the balance sheet.
EXCHANGE RIGHTS: The Irvine Company and certain of its affiliates have the right
to exchange up to one-third of the total partnership units owned by them for
shares of common stock in each twelve-month period commencing on December 8 of
each year at an exchange ratio of one to one, subject to adjustment in certain
events. These exchanges are subject to certain restrictions including percentage
ownership limits.
GENERAL PARTNER'S OBLIGATION TO PURCHASE TENDERED PARTNERSHIP UNITS: The Irvine
Company and certain of its affiliates have the right to sell to the General
Partner for cash generally up to one-third of its partnership units in each
twelve-month period commencing on December 8 of each year. These sales are
subject to certain restrictions. The General Partner is to purchase the tendered
interests at a purchase price equal to the average of the daily market prices
for the common stock of the General Partner for the ten consecutive
F-16
<PAGE> 42
IRVINE APARTMENT COMMUNITIES, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per unit amounts)
trading days immediately preceding the date of receipt by the General Partner of
a notice of cash tender. The General Partner is to pay for these interests
solely with the net proceeds of an offering of the General Partner's common
stock. The General Partner would bear the costs of sale (other than underwriting
discounts and commissions). The Irvine Company and certain of its affiliates
would bear all market risk if the market price at closing was less than the
purchase price as determined on the date of tender. Any proceeds of the offering
in excess of the purchase price would be for the sole benefit of the General
Partner.
RENT RESTRICTIONS: As of December 31, 1997, 18.5% of the apartment units within
the Partnership's portfolio were required to be set aside for residents within
certain income levels and had limitations on the rent that could be charged to
such tenants. The rental revenue from five of these projects includes
governmental rent subsidy payments of $3,903, $3,977 and $4,023 for the years
ended December 31, 1997, 1996 and 1995, respectively.
NOTE 14 -- IAC CAPITAL TRUST (UNAUDITED)
In January 1998, IAC Capital Trust issued 6.0 million of 8 1/4% Series A
Preferred Securities. The proceeds of $150 million were used to purchase an
equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the
Partnership. The Partnership used the $150 million of proceeds, net of costs and
offering expenses, all of which were paid by the Partnership, to repay the
outstanding balance on the Partnership's credit facility and to fund
development.
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
All 1996 quarters and the first three quarters of 1997 have been restated to
comply with the new accounting requirements regarding earnings per unit.
<TABLE>
<CAPTION>
(dollars in thousands, except per unit data)
1997 Quarters Ended March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $43,280 $44,673 $48,913 $50,079
Expenses 29,761 29,583 34,567 34,451
Net income 13,519 15,090 14,346 15,628
Basic earnings per unit $0.32 $0.34 $0.33 $0.35
Diluted earnings per unit $0.32 $0.34 $0.33 $0.35
=============================================================================================================
1996 Quarters Ended March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------
Revenues $37,089 $38,967 $40,680 $41,962
Expenses 28,401 29,811 29,619 29,675
Net income 8,688 9,156 11,061 12,287
Basic earnings per unit $0.23 $0.24 $0.27 $0.30
Diluted earnings per unit $0.23 $0.24 $0.27 $0.30
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
To the Partners
Irvine Apartment Communities, L.P.
We have audited the accompanying consolidated balance sheets of Irvine
Apartment Communities, L.P., a Delaware limited partnership, as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedule
beginning on page F-19. These financial statements and schedule are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Irvine
Apartment Communities, L.P. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
-----------------------------------
Newport Beach, California
January 30, 1998
F-18
<PAGE> 44
IRVINE APARTMENT COMMUNITIES, INC.
SCHEDULE III -- CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at December 31, 1997(a)(b)
------------------------------------
Number of Encum- Buildings and Accumulated Date of Depreciable
Property Units brances(c) Land(d) Improvements Total Depreciation Completion Life(e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES STABILIZED FOR ALL OF 1997:
IRVINE, CALIFORNIA
Amherst Court 162 $ 1,430 $ 11,265 $ 12,695 $ 2,675 1991 5-40 yrs.
Berkeley Court 152 $ 7,722 858 8,273 9,131 3,041 1986 5-40 yrs.
Cedar Creek 176 8,492 519 8,666 9,185 3,280 1985 5-40 yrs.
Columbia Court 58 2,572 321 2,689 3,010 961 1984 5-40 yrs.
Cornell Court 109 5,145 785 5,065 5,850 1,760 1984 5-40 yrs.
Cross Creek 136 6,680 561 7,317 7,878 2,786 1985 5-40 yrs.
Dartmouth Court 294 17,114 2,674 17,338 20,012 6,005 1986 5-40 yrs.
Deerfield 288 10,656 3,810 11,649 15,459 4,740 1975/83 5-40 yrs.
Harvard Court 112 5,101 1,034 5,880 6,914 2,118 1986 5-40 yrs.
Northwood Park 168 7,674 1,246 8,498 9,744 3,307 1985 5-40 yrs.
Northwood Place 604 29,813 4,613 34,542 39,155 12,081 1986 5-40 yrs.
Orchard Park 60 1,138 2,115 3,253 896 1982 5-40 yrs.
Park West 880 33,630 18,768 53,876 72,644 27,549 1970/71/72 5-40 yrs.
Parkwood 296 12,428 7,667 12,825 20,492 5,250 1974 5-40 yrs.
Rancho San Joaquin 368 16,766 7,910 28,446 36,356 13,696 1976 5-40 yrs.
San Carlo 354 2,751 26,002 28,753 6,605 1989 5-40 yrs.
San Leon 248 12,245 1,751 14,560 16,311 4,845 1987 5-40 yrs.
San Marco 426 24,061 2,922 24,400 27,322 6,899 1988 5-40 yrs.
San Marino 200 9,741 1,399 11,602 13,001 4,082 1986 5-40 yrs.
San Mateo 283 1,462 18,675 20,137 4,330 1990 5-40 yrs.
San Paulo 382 26,324 1,930 26,886 28,816 3,317 1993 5-40 yrs.
San Remo 248 13,681 1,792 14,332 16,124 4,849 1986/88 5-40 yrs.
Santa Clara 378 3,761 30,996 34,757 2,470 1996 5-40 yrs.
Santa Rosa 368 3,277 27,550 30,827 2,335 1996 5-40 yrs.
Stanford Court 320 13,725 2,202 14,260 16,462 5,592 1985 5-40 yrs.
The Parklands 121 6,102 68 7,214 7,282 2,511 1983 5-40 yrs.
Turtle Rock Canyon 217 18,585 1,889 20,108 21,997 4,359 1991 5-40 yrs.
Turtle Rock Vista 252 13,178 6,327 13,471 19,798 5,576 1976/77 5-40 yrs.
Villa Coronado 513 5,842 38,069 43,911 3,302 1996 5-40 yrs.
Windwood Glen 196 9,744 1,266 9,719 10,985 3,422 1985 5-40 yrs.
Windwood Knoll 248 1,111 11,815 12,926 4,068 1983 5-40 yrs.
Woodbridge Oaks 120 832 6,832 7,664 2,398 1983 5-40 yrs.
Woodbridge Pines 220 8,332 5,755 10,607 16,362 4,345 1976 5-40 yrs.
Woodbridge Villas 258 4,353 9,234 13,587 3,978 1982 5-40 yrs.
Woodbridge Willows 200 9,549 1,421 11,501 12,922 5,161 1984 5-40 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
9,415 329,060 105,445 566,277 671,722 174,591
- ------------------------------------------------------------------------------------------------------------------------------------
NEWPORT BEACH, CALIFORNIA
Bayport 104 4,787 3,146 4,249 7,395 1,818 1971 5-40 yrs.
Bayview 64 3,456 2,353 2,939 5,292 1,291 1971 5-40 yrs.
Baywood 388 20,651 10,809 20,496 31,305 8,106 1973/84 5-40 yrs.
Mariner Square 114 5,542 392 5,145 5,537 3,365 1969 5-40 yrs.
Newport North 570 37,554 8,849 31,417 40,266 10,810 1986 5-40 yrs.
Newport Ridge 512 9,542 45,094 54,636 3,283 1996 5-40 yrs.
Promontory Point 520 35,683 18,775 41,566 60,341 17,480 1974 5-40 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
2,272 107,673 53,866 150,906 204,772 46,154
- ------------------------------------------------------------------------------------------------------------------------------------
TUSTIN, CALIFORNIA
Rancho Alisal 356 20,400 3,558 20,029 23,587 6,446 1988/91 5-40 yrs.
Rancho Maderas 266 19,160 1,144 16,291 17,435 4,184 1989 5-40 yrs.
Rancho Mariposa 238 12,597 683 16,290 16,973 3,038 1992 5-40 yrs.
Rancho Monterey 436 6,823 33,994 40,817 2,485 1996 5-40 yrs.
Rancho Tierra 252 19,407 1,215 16,505 17,720 4,372 1989 5-40 yrs.
Sierra Vista 306 2,318 22,808 25,126 4,133 1992 5-40 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
1,854 71,564 15,741 125,917 141,658 24,657
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES STABILIZED
FOR ALL OF 1997 13,541 508,297 175,052 843,100 1,018,152 245,402
- ------------------------------------------------------------------------------------------------------------------------------------
PROPERTIES STABILIZED OR ACQUIRED
DURING 1997:
Santa Maria (Irvine) 227 3,343 19,289 22,632 588 1997 5-40 yrs.
Baypointe (Newport Beach) 300 4,190 28,818 33,008 755 1997 5-40 yrs.
Villas of Renaissance
(San Diego County) 923 23,075 104,390 127,465 1,387 1992 5-40 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES STABILIZED OR
ACQUIRED DURING 1997 1,450 30,608 152,497 183,105 2,731
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STABILIZED PORTFOLIO 14,991 $ 508,297 $ 205,660 $ 995,597 $ 1,201,257 $ 248,132
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE> 45
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at December 31, 1997(a)(b)
---------------------------------
Date Depreci-
Number of Encum- Buildings and Accumulated of Com- able
Apartment Community Name (Location) Units brances(c) Land (d) Improvements Total Depreciation pletion Life(e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DELIVERED UNITS IN PROJECTS UNDER
DEVELOPMENT
The Colony (Newport Beach) 81 $ 1,166 $ 13,408 $ 14,574 $ 25 5-40 yrs.
Rancho Santa Fe (Tustin) 36 971 3,547 4,518 3 5-40 yrs.
Santa Rosa II (Irvine) 28 890 2,765 3,655 4 5-40 yrs.
Other 379 379 80
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DELIVERED UNITS 145 3,027 20,099 23,126 113
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STABILIZED AND DELIVERED 15,136 508,297 208,687 1,015,696 1,224,383 248,245
- ------------------------------------------------------------------------------------------------------------------------------------
UNITS UNDER DEVELOPMENT
The Colony (Newport Beach) 164 2,379 23,939 26,318
Rancho Santa Fe (Tustin) 280 7,437 17,338 24,775
Santa Rosa II (Irvine) 179 5,109 13,361 18,470
The Hamptons (Silicon Valley) 342 15,000 20,033 35,033
Sonoma (Irvine) 196 5,697 2,275 7,972
Brittany (Irvine) 393 10,325 1,855 12,180
Stonecrest (San Diego County) 326 9,475 199 9,674
Avventura (San Diego County) 232 7,800 666 8,466
Other 5,536 5,536
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL UNITS UNDER DEVELOPMENT 2,112 63,222 85,202 148,424
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 17,248 $508,297 $271,909 $1,100,898 $1,372,807 $248,245
====================================================================================================================================
</TABLE>
Notes:
(a) The aggregate cost basis of land and buildings before accumulated
depreciation for federal income tax purposes is approximately $1,051,835
(unaudited).
(b) The gross amount at which buildings and improvements are carried represent
historical cost amounts incurred in the development of the projects and
capital improvements incurred subsequent to the completion of
construction. Prior to the IAC's December 1993 initial public offering,
the gross land, buildings and improvements amounts represent The Irvine
Company's (i.e. the Predecessor's) historical cost basis.
(c) Encumbrances represent debt secured by deeds of trust.
(d) Land acquired from The Irvine Company is recorded at cost based on the
purchase price.
(e) Estimated useful lives are five to seven years for furniture and fixtures,
five to twenty years for improvements and forty years for buildings.
A summary of activity of real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
Real Estate 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $1,084,234 $1,005,633 $869,756
Additions:
Through cash expenditures 252,668 66,857 124,368
Through assumption of tax-exempt
assessment district debt 2,771 4,184
Through issuance of Operating
Partnership units 35,905 8,973 7,325
- -------------------------------------------------------------------------------------------------------
Balance at end of year $1,372,807 $1,084,234 $1,005,633
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
Accumulated Depreciation 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $219,193 $192,106 $169,039
Charges to depreciation expense 29,052 27,087 23,067
- -------------------------------------------------------------------------------------------------------
Balance at end of period $248,245 $219,193 $192,106
- -------------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE> 1
EXHIBIT 3.5
-----------------------------------------------------
SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP
OF
IRVINE APARTMENT COMMUNITIES, L.P.
(a Delaware limited partnership)
-----------------------------------------------------
Dated as of January 20, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 DEFINED TERMS...................................................... 2
ARTICLE 2 ORGANIZATIONAL MATTERS............................................. 23
Section 2.1 Formation; Continuation...................................... 23
Section 2.2 Name......................................................... 23
Section 2.3 Registered Office and Agent;
Principal Office............................................. 23
Section 2.4 Power of Attorney............................................ 23
Section 2.5 Term......................................................... 25
ARTICLE 3 PURPOSE............................................................ 25
Section 3.1 Purpose and Business......................................... 25
Section 3.2 Powers....................................................... 25
Section 3.3 Partnership Only for Purposes Specified...................... 26
Section 3.4 Representations and Warranties by the Parties................ 26
ARTICLE 4 CAPITAL CONTRIBUTIONS.............................................. 27
Section 4.1 Capital Contributions of the Partners........................ 27
Section 4.2 Additional Capital Contribution and Loans Generally.......... 28
Section 4.3 Land Rights Agreement; Property Acquisitions................. 28
Section 4.4 Loans by Third Parties....................................... 29
Section 4.5 Additional Funding and Capital Contributions................. 29
Section 4.6 Stock Incentive Plans........................................ 33
Section 4.7 No Third Party Beneficiary................................... 33
Section 4.8 DRIP/ACP Plans .............................................. 34
ARTICLE 5 DISTRIBUTIONS...................................................... 37
Section 5.1 Requirements and Characterization of Distributions........... 37
Section 5.2 Distributions in Kind........................................ 38
Section 5.3 Distributions Upon Liquidation............................... 38
Section 5.4 Restricted Distributions..................................... 38
ARTICLE 6 ALLOCATIONS........................................................ 38
Section 6.1 Allocations in General....................................... 38
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 6.2 Additional Allocation Provisions............................. 38
Section 6.3 Tax Allocations.............................................. 42
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS.............................. 42
Section 7.1 Management................................................... 42
Section 7.2 Certificate of Limited Partnership........................... 46
Section 7.3 Restrictions on General Partner's Authority.................. 47
Section 7.4 Reimbursement of the General Partner;
Reimbursement of Limited Partner............................. 50
Section 7.5 Outside Activities of the General Partner.................... 51
Section 7.6 Contracts with Affiliates.................................... 52
Section 7.7 Indemnification.............................................. 53
Section 7.8 Liability of the General Partner............................. 54
Section 7.9 Other Matters Concerning the General Partner................. 56
Section 7.10 Title to Partnership Assets.................................. 56
Section 7.11 Reliance by Third Parties.................................... 57
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS......................... 58
Section 8.1 Limitation of Liability...................................... 58
Section 8.2 Management of Business....................................... 58
Section 8.3 Outside Activities of Limited Partners....................... 58
Section 8.4 Return of Capital............................................ 59
Section 8.5 Rights of Limited Partners Relating to the Partnership....... 59
Section 8.6 Exchange and Cash Tender Rights.............................. 60
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS............................. 67
Section 9.1 Records and Accounting....................................... 67
Section 9.2 Reports...................................................... 68
ARTICLE 10 TAX MATTERS....................................................... 68
Section 10.1 Preparation of Tax Returns; Tax Accounting................... 68
Section 10.2 Tax Elections................................................ 69
Section 10.3 Tax Matters Partner.......................................... 69
Section 10.4 Withholding.................................................. 69
ARTICLE 11 TRANSFERS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER............. 70
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 11.1 Transfer..................................................... 70
Section 11.2 Transfer of General Partner's Interest....................... 70
Section 11.3 Limited Partners' Rights to Transfer......................... 71
Section 11.4 Substituted Limited Partners................................. 76
Section 11.5 Assignees.................................................... 76
Section 11.6 General Provisions........................................... 77
Section 11.7 Removal of General Partner................................... 78
ARTICLE 12 ADMISSION OF PARTNERS............................................. 79
Section 12.1 Admission of Successor General Partner....................... 79
Section 12.2 Admission of Additional Limited Partners..................... 79
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership.................................................. 80
Section 12.4 Limit on Number of Partners.................................. 80
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION.......................... 81
Section 13.1 Dissolution.................................................. 81
Section 13.2 Winding Up................................................... 81
Section 13.3 [Intentionally omitted]...................................... 83
Section 13.4 Rights of Limited Partners................................... 83
Section 13.5 Notice of Dissolution........................................ 83
Section 13.6 Termination of Partnership and Cancellation of Certificate
of Limited Partnership....................................... 84
Section 13.7 Reasonable Time for Winding-Up............................... 84
Section 13.8 Waiver of Partition.......................................... 84
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS...................... 84
Section 14.1 Amendments................................................... 84
Section 14.2 Meetings of the Common Limited Partners...................... 85
Section 14.3 Meetings of the Preferred Limited Partners................... 85
ARTICLE 15 GENERAL PROVISIONS................................................ 86
Section 15.1 Addresses and Notice......................................... 86
Section 15.2 Titles and Captions.......................................... 86
Section 15.3 Pronouns and Plurals......................................... 86
Section 15.4 Further Action............................................... 86
Section 15.5 Binding Effect............................................... 86
Section 15.6 Waiver....................................................... 87
Section 15.7 Counterparts................................................. 87
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 15.8 Applicable Law............................................... 87
Section 15.9 Entire Agreement............................................. 87
Section 15.10 Invalidity of Provisions..................................... 87
Section 15.11 Outstanding Limited Partner Interests........................ 87
Section 15.12 Certificates for Preferred Limited Partner Interests
Issued to IAC Capital Trust.................................. 87
</TABLE>
EXHIBITS:
Exhibit A - Partners, Contributions and Partnership Interests
Exhibit B - Notice of Exchange
Exhibit C - Notice of Cash Tender
Exhibit D - Form of Common Limited Partner Unit Certificate
iv
<PAGE> 6
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
IRVINE APARTMENT COMMUNITIES, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of
January 20, 1998 is entered into by and among Irvine Apartment Communities,
Inc., a Maryland corporation, as the General Partner, and the Persons whose
names are set forth on Exhibit A as attached hereto, as the Limited Partners,
together with any other Persons who become Partners in the Partnership as
provided herein.
W I T N E S S E T H:
WHEREAS, on November 15, 1993, Irvine Apartment Communities, Inc. and The
Irvine Company formed a Delaware limited partnership under the name "Irvine
Apartment Communities, L.P." (the "Partnership");
WHEREAS, effective as of December 1, 1993, (i) Irvine Apartment
Communities, Inc. and The Irvine Company made additional contributions to the
Partnership and admitted additional Common Limited Partners to the Partnership;
and (ii) Irvine Apartment Communities, Inc., The Irvine Company and such Limited
Partners entered into the Amended and Restated Agreement of Limited Partnership
dated as of December 1, 1993 (the "First Amendment and Restatement");
WHEREAS, the First Amendment and Restatement was amended by agreements
dated as of April 20, 1995, July 18, 1995, August 9, 1995, March 20, 1996, May
1, 1996, June 30, 1996, February 4, 1997, July 25, 1997 and December 1, 1997 (as
so amended, the "Prior Agreement") and pursuant to certain of such amendments
and agreements dated as of March 7, 1995, June 21, 1996, July 3, 1996 and July
30, 1996 certain Additional Limited Partners and Substituted Limited Partners
were admitted to the Partnership as Common Limited Partners;
WHEREAS, as of the date hereof the interests of the current Partners in
the Partnership are as set forth in Amendment No. 26 to Exhibit A to the Prior
Agreement;
WHEREAS, the parties desire to further amend the Prior Agreement pursuant
to Sections 14.1 and 7.3D thereof to, among other things, (i) provide for the
issuance from time to time of preferred limited partner interests in series and
(ii) to delete certain provisions and related definitions and exhibits relating
to certain events and transactions which have occurred and which do not affect
the Partnership or the distributions and allocations provided for herein on an
ongoing basis; and in connection therewith to amend and restate the Prior
Agreement in its entirety; and
WHEREAS, the parties hereto desire to continue the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
in accordance with the provisions of this Agreement, which supersedes, amends
and restates the Prior Agreement.
<PAGE> 7
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, covenant and agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"ACP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of additional cash to be invested in newly issued REIT
Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan minus the
aggregate amount of additional cash to be so invested by all Irvine Persons and
the Original Limited Partners in newly issued REIT Shares on such DRIP/ACP
Investment Date pursuant to the DRIP/ACP Plan.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Act of Bankruptcy" shall be deemed to occur (i) with respect to TRC if
TRC or any shareholder thereof, and (ii) with respect to a TRC Shareholder if
such TRC Shareholder shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect) or any new bankruptcy statute, (e) be adjudicated bankrupt
or insolvent, (f) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, (g) fail to controvert in a timely and appropriate manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect)
or any new bankruptcy statute, or (h) take any corporate or partnership action
for the purpose of effecting any of the foregoing; or if a proceeding or case
shall be commenced, without the application or consent of a party hereto or any
general partner thereof, in any court of competent jurisdiction seeking (1) the
liquidation, reorganization, dissolution or winding-up, or the composition or
readjustment of debts, of such party or general partner, (2) the appointment of
a receiver, custodian, trustee or liquidator of such party, shareholder or
general partner of all or any substantial part of its assets, or (3) other
similar relief under any law relating to bankruptcy, insolvency, reorganization,
winding-up or composition or adjustment of debts, and such proceeding or case
shall continue undismissed; or an order (including an order for relief entered
in an involuntary case under the Federal Bankruptcy Code, as now or hereafter in
effect, or any new bankruptcy statute) judgment or decree approving or
2
<PAGE> 8
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of sixty (60) consecutive days.
"Actions" has the meaning set forth in Section 7.7.A hereof.
"Actual Limited Partner Investment Amount" means with respect to each
DRIP/ACP Investment Date the dollar amount specified in the election notice
delivered pursuant to Section 4.8.A(2) not to exceed the Maximum Limited Partner
Investment Amount for such DRIP/ACP Investment Date, provided that if such
election notice is given but fails to specify the Actual Limited Partner
Investment Amount, then the Actual Limited Partner Investment Amount shall be
the Maximum Limited Partner Investment Amount.
"Additional Funds" has the meaning set forth in Section 4.5.A hereof.
"Additional Limited Partner" means a Person admitted to the Partnership as
either a Preferred Limited Partner or Common Limited Partner pursuant to
Sections 4.5.D and 12.2 hereof and who is shown as such on the books and records
of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.
"Adjustment Date" means the date of a Capital Contribution pursuant to
Section 4.5 hereof.
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time,
including pursuant to a Designation Instrument.
3
<PAGE> 9
"Apartment Community Project" means any multifamily rental apartment
community, including the structure, buildings and other facilities, and any
construction and improvement activities undertaken with respect thereto.
"Appraisal" means, with respect to any assets, the written opinion of an
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith, such selection to be subject to the
reasonable approval of The Irvine Company, for so long as The Irvine Company is
a holder of a Common Limited Partner Interest representing at least a 10% Junior
Percentage Interest, and thereafter, to the extent there is an Original Limited
Partner, the Original Limited Partner holding the largest Junior Percentage
Interest in the Partnership, provided that for purposes of clause (c) of the
definition of Gross Asset Value, the independent third party shall be selected
by the distributee if the distributee is other than the General Partner.
"Assignee" means a Person to whom one or more Limited Partner Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made,
(i) the sum, without duplication, of:
(a) the Partnership's Net Income or Net Loss (as the case
may be) for such period (without regard to adjustments resulting
from special allocations described in Section 6.2.B hereof),
(b) Depreciation and all other noncash charges or accruals
to the extent deducted in determining Net Income or Net Loss for
such period,
(c) the excess, if any, of the net cash proceeds from the
sale, exchange, disposition, or refinancing of Partnership property
for such period over the gain (or loss, as the case may be)
recognized from such sale, exchange, disposition, or refinancing
during such period (excluding Terminating Capital Transactions), and
(d) all other cash received (including amounts previously
accrued as Net Income and amounts of deferred income) or any amounts
borrowed by the Partnership for such period that was not included in
determining Net Income or Net Loss for such period;
(ii) less the sum, without duplication, of:
(a) all principal debt payments made during such period by
the Partnership,
4
<PAGE> 10
(b) capital expenditures made by the Partnership during such
period,
(c) investments in any entity (including loans made thereto)
to the extent that such investments are not otherwise described in
clause (ii)(b),
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period (including
amounts paid in respect of expenses previously accrued),
(e) any amount included in determining Net Income or Net
Loss for such period that was not received by the Partnership during
such period, and
(f) the amount of any working capital accounts and other
cash or cash equivalents which the General Partner determines to be
necessary or appropriate in its sole discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after commencement of the dissolution, and liquidation
of the Partnership.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York or Los Angeles, California are
authorized or required by law to close.
"Capital Account" means, with respect to any Partner, the Capital Account
maintained for such Partner in accordance with the following provisions:
(a) To each Partner's Capital Account, there shall be added
such Partner's Capital Contributions, such Partner's share of Net
Income and any items in the nature of income or gain which are
specially allocated pursuant to Section 6.2 hereof, and the
principal amount of any Partnership liabilities assumed by such
Partner or which are secured by any property distributed to such
Partner.
(b) From each Partner's Capital Account, there shall be
subtracted the amount of cash and the Gross Asset Value of any
property distributed to such Partner pursuant to any provision of
this Agreement, such Partner's distributive share of Net Losses and
any items in the nature of expenses or losses which are specially
allocated pursuant to Section 6.2 hereof, and the principal amount
of any liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such Partner to the
Partnership.
5
<PAGE> 11
(c) In the event any interest in the Partnership is
transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to
the extent it is attributable to the transferred interest.
(d) In determining the amount of any liability for purposes
of subsections (a) and (b) hereof, there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code
and Regulations.
(e) The provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b) and 1.704-2, and shall be interpreted
and applied in a manner consistent with such Regulations. If the
General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts are maintained in order to
comply with such Regulations, the General Partner may make such
modification provided that such modification will not have a
material effect on the amounts distributable to any Partner without
such Partner's consent. The General Partner also shall make any
adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, as
computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q).
"Capital Contribution" means, with respect to any Partner, any cash or the
Gross Asset Value of any Contributed Property which such Partner contributes to
the Partnership pursuant to Sections 4.1, 4.2, 4.3 or 4.5 hereof or is deemed to
contribute pursuant to Sections 4.5.F, 4.5.H(1), 4.6 and 4.8 hereof, as such
Gross Asset Value may be determined from time to time.
"Cash Amount" means an amount of cash equal to the Value of the REIT
Shares Amount.
"Cash Tender" has the meaning set forth in Section 8.6.
"Cash Tender Amount" means the lesser of (i) the Cash Amount or (ii) the
Public Offering Funding Amount.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Certificate of Incorporation" means the Articles of Amendment and
Restatement of the General Partner filed in the office of the State Department
of Assessments and Taxation of the State of Maryland on April 29, 1996, as
amended or restated from time to time, including any Articles Supplementary.
6
<PAGE> 12
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable Regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Common Limited Partner" means any Person named as a Common Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Common Limited Partner in the Partnership.
"Common Limited Partner Interest" means a Partnership Interest of a Common
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Common Limited Partners. A Common Limited Partner
Interest may be expressed as a number of Partnership Units (each a "Common
Limited Partner Unit").
"Consent" means the consent to or approval of a proposed action by a
Partner given in accordance with Section 14.2 or Section 14.3 hereof.
"Consent of the Common Limited Partners" means the Consent of a
Majority-In-Interest of the Common Limited Partners, which Consent shall be
obtained prior to the taking of any action for which it is required by this
Agreement and may be given or withheld by a Majority-In-Interest of the Common
Limited Partners, in their sole discretion.
"Contributed Properties" means each Property or other asset, but excluding
cash, contributed or deemed contributed to the Partnership (or deemed
contributed to the Partnership on termination and reconstitution thereof
pursuant to Section 708 of the Code).
"Conversion Factor" means 1.0, provided that in the event that the General
Partner (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination. Any adjustment to the Conversion Factor shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
"Corresponding ACP/L.P. Unit Amount" means with respect to each DRIP/ACP
Investment Date a number of Common Limited Partner Units equal to "A" divided by
"B", where
7
<PAGE> 13
"A" equals a dollar amount equal to the Actual Limited Partner Investment Amount
for such DRIP/ACP Investment Date minus the Maximum DRIP Limited Partner
Investment Amount for such DRIP/ACP Investment Date (provided that if the
Maximum DRIP Limited Partner Investment Amount is greater than the Actual
Limited Partner Investment Amount, then "A" shall be $0); and "B" equals the
purchase price per newly issued REIT Share issued on such DRIP/ACP Investment
Date with additional cash investments, determined as provided in the DRIP/ACP
Plan.
"Corresponding DRIP/L.P. Unit Amount" means with respect to each DRIP/ACP
Investment Date a number of Common Limited Partner Units equal to "C" divided by
"D", where "C" equals the lesser of (i) the Actual Limited Partner Investment
Amount for such DRIP/ACP Investment Date and (ii) the Maximum DRIP Limited
Partner Investment Amount for such DRIP/ACP Investment Date, and "D" equals the
purchase price per newly issued REIT Share issued on such DRIP/ACP Investment
Date as a result of the reinvestment of dividends, determined as provided in the
DRIP/ACP Plan.
"Corresponding L.P. Unit Amount" means with respect to each DRIP/ACP
Investment Date the aggregate of the Corresponding DRIP/L.P. Unit Amount and the
Corresponding ACP/L.P. Unit Amount, provided that if such calculation results in
a fractional Common Limited Partner Unit, the Corresponding L.P. Unit Amount
shall be rounded downward.
"Debt" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; and (iii) all indebtedness for
borrowed money or for the deferred purchase price of property or services
secured by any lien on any property owned by such Person, to the extent
attributable to such Person's interest in such property, even though such Person
has not assumed or become liable for the payment thereof.
"Declaration of Trust" means the Declaration of Trust of IAC Capital Trust
dated as of October 31, 1997, as amended and restated by the Amended and
Restated Declaration of Trust of IAC Capital Trust dated as of January 20, 1998,
as such agreement may be amended, modified or restated from time to time.
"Depreciation" means, for each Partnership Year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year, Depreciation shall be in an amount which
bears the same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for such year
bears to such beginning adjusted tax basis; provided, however, that if the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year is zero, Depreciation shall be
8
<PAGE> 14
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the General Partner.
"Designation Instrument" means with respect to a series of Preferred
Limited Partner Interests, an instrument executed by the General Partner at the
time of issuance of such series of Preferred Limited Partner Interests, setting
forth the rights, powers and duties of such series as established by the General
Partner pursuant to Section 4.5.F of this Agreement. The General Partner shall
identify each such Designation Instrument as the next consecutively lettered
Exhibit to this Agreement (the first such Designation Instrument to be Exhibit E
hereto) and shall deliver a conformed copy thereof to each Limited Partner,
provided that the failure to deliver a conformed copy to a Limited Partner shall
not in any way invalidate the issuance of such series of Preferred Limited
Partner Interests or give any Limited Partner any rights under this Agreement
other than the right to obtain a conformed copy of such Designation Instrument.
"DRIP/ACP Investment Amount" means with respect to a DRIP/ACP Investment
Date the aggregate of the DRIP Investment Amount and the ACP Investment Amount.
"DRIP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of dividends paid on REIT Shares to be reinvested in newly
issued REIT Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP
Plan minus the aggregate amount of dividends paid on REIT Shares beneficially
owned (whether under the DRIP/ACP Plan or otherwise) by all Irvine Persons and
the Original Limited Partners to be so reinvested in newly issued REIT Shares on
such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan.
"DRIP/ACP Investment Date" means the date on which the DRIP Investment
Amount is reinvested in newly issued REIT Shares and/or the date on which the
ACP Investment Amount is used to purchase newly issued REIT Shares, in each case
as set forth in the DRIP/ACP Plan.
"DRIP/ACP Plan" means the Irvine Apartment Communities, Inc. Dividend
Reinvestment and Additional Cash Investment Plan described in the General
Partner's Registration Statement on Form S-3 and any other dividend reinvestment
and additional cash investment plan established by the General Partner.
"DRIP Percentage" has the meaning set forth in Section 4.8.A(1).
"Effective Date" means December 8, 1993, the date of closing of the
Initial Public Offering of the REIT Shares.
"Election Notice" has the meaning set forth in Section 4.5.G hereof.
"Excess Common Stock" and "Excess Preferred Stock" means the classes of
shares of the General Partner as defined in Subsection 4(A) of Section (c) of
ARTICLE SIXTH of the Certificate of Incorporation.
9
<PAGE> 15
"Exchange" shall have the meaning set forth in Section 8.6 hereof.
"Existing Property Partnership" means the San Rafael Apartments Limited
Partnership.
"Existing Property Partnership Interest" shall mean the interest of the
Partnership as a 1% general partner and a 98% limited partner in the Existing
Property Partnership.
"Funding Debt" means any Debt incurred by or on behalf of the General
Partner for the purpose of providing funds to the Partnership.
"Funding Notice" has the meaning set forth in Section 4.5.B hereof.
"General Partner" means Irvine Apartment Communities, Inc. or its
successor as general partner of the Partnership in their capacities as general
partner of the Partnership.
"General Partner Interest" means the Partnership Interest held by the
General Partner that is the general partner interest hereunder. A General
Partner Interest may be expressed as a number of Partnership Units (each a
"General Partner Unit").
"General Partner Loan" has the meaning set forth in Section 4.5.C hereof.
"General Partner's Stock Incentive Plans" means the Irvine Apartment
Communities, Inc. 1993 Long-Term Stock Incentive Plan, the Irvine Apartment
Communities, Inc. 1993 Stock Plan for Directors, The Irvine Apartment
Communities, Inc. 1996 Long-Term Stock Incentive Plan, and any other officer,
director or employee stock plan established from time to time by the General
Partner.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be (i) in the case of assets
included in Exhibit A the gross fair market value of such assets as
agreed by the Partners and as set forth in Exhibit A under the
heading "Gross Asset Value of Contributed Property", and (ii) in the
case of any other assets that are contributed to the Partnership,
their gross fair market value as agreed by the General Partner, the
contributing Partner and the Irvine Person, if any, holding the
largest Junior Percentage Interest in the Partnership. The
sub-allocation of any Gross Asset Value determined pursuant to
clauses (i) or (ii) within any group of assets shall be determined
by agreement of the General Partner, the contributing Partner and
the Irvine Person, if any, holding the largest Junior Percentage
Interest in the Partnership in accordance with the principles of
Section 1060 of the Code. In any case in which the General Partner,
the contributing Partner and the Irvine Person, if any, holding the
largest Junior
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Percentage Interest in the Partnership are unable to agree as to the
gross fair market value of any asset or assets such Gross Asset
Value shall be determined by Appraisal in accordance with such
principles.
(b) The Gross Asset Values of all Partnership assets
immediately prior to the occurrence of any event described in (i),
(ii), (iii), (iv) or (v) hereof shall be adjusted to equal their
respective gross fair market values, as determined by the General
Partner using such reasonable method of valuation as it may adopt,
as of the following times:
(i) the acquisition of an additional interest in the
Partnership by a new or existing Partner in exchange for more
than a de minimis Capital Contribution including, but not
limited to, acquisitions pursuant to Section 4.3 or
contributions and deemed contributions by the General Partner
pursuant to Section 4.6, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership;
(ii) the distribution by the Partnership to a Partner
of more than a de minimis amount of Partnership property as
consideration for an interest in the Partnership, if the
General Partner reasonably determines that such adjustment is
necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(iii) the liquidation of the Partnership within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor General Partner
pursuant to Section 11.7.C hereof; and
(v) at such other times as the General Partner shall
reasonably determine necessary or advisable in order to comply
with Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset
distributed to a Partner shall be the gross fair market value of
such asset on the date of distribution as determined by the
distributee and the General Partner provided, however, if the
distributee is the General Partner, or if the distributee and the
General Partner cannot agree on such a determination, by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such
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<PAGE> 17
adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided,
however, that Gross Asset Values shall not be adjusted pursuant to
this subparagraph (d) to the extent that the General Partner
reasonably determines that an adjustment pursuant to subparagraph
(b) is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this
subparagraph (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subparagraph (a), (b) or (d),
such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for
purposes of computing Net Income and Net Losses.
"G.P. Per Unit Contribution" has the meaning set forth in Section
4.5.H(1).
"IAC Capital Trust" means IAC Capital Trust, a Delaware business trust
formed pursuant to the Declaration of Trust and the Business Trust Act of the
State of Delaware (12 Del. Code Section 3801 et seq.).
"IRS" means the Internal Revenue Service.
"Immediate Family" of any individual means, such individual's estate and
heirs, spouse and children (whether natural or adoptive or by marriage) and any
trust or estate, the beneficiaries of which include such Person or any of the
foregoing.
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation,
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<PAGE> 18
reorganization or other relief of or against such Partner under any bankruptcy,
insolvency or other similar law now or hereafter in effect has not been
dismissed within one hundred twenty (120) days after the commencement thereof,
(g) the appointment without the Partner's consent or acquiescence of a trustee,
receiver or liquidator has not been vacated or stayed within ninety (90) days of
such appointment, or (h) an appointment referred to in clause (g) is not vacated
within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by reason
of (A) its status as the General Partner, or (B) such Person's status as a
director of the General Partner or an officer or employee of the Partnership or
the General Partner, or (C) such Person's status as a director of The Irvine
Company, (ii) other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from time to time (whether
before or after the event giving rise to potential liability), in its sole
discretion, (iii) TRC and the TRC Shareholders and (iv) any Irvine Person.
"Initial Public Offering" means the offering of the General Partner's
Common Stock pursuant to the Form S-11 Registration Statement (No. 33-68830)
filed by the General Partner with the Securities and Exchange Commission.
"Investing Entities" has the meaning set forth in Section 4.8.A(2).
"Irvine Apartment Communities" means Irvine Apartment Communities, Inc, a
Maryland corporation.
"Irvine Persons" means (i) The Irvine Company and its Affiliates, (ii)
Donald L. Bren and his Affiliates and Immediate Family, and any successors
thereto by descent or devise and (iii) the current and future shareholders of
The Irvine Company, and any Affiliates of any current and future shareholders of
the Irvine Company and the Immediate Family of such shareholders.
"Junior Partnership Interests" means the General Partner Interest and the
Common Limited Partner Interests.
"Junior Percentage Interest" means, as to the General Partner and each
Common Limited Partner, its interest in the Partnership as determined by
dividing, as applicable, the number of General Partner Units or Common Limited
Partner Units owned by such Partner by the aggregate number of General Partner
Units and Common Limited Partner Units then outstanding and as specified in
Exhibit A attached hereto, as such Exhibit may be amended from time to time.
"Land Rights Agreement" means the agreement dated as of November 21, 1993,
as amended, among Irvine Apartment Communities, the Partnership, The Irvine
Company and Donald L. Bren evidencing, inter alia, certain exclusive rights to
acquire land from The Irvine Company and certain non-competition arrangements,
as such agreement may be further amended, modified or restated from time to
time.
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"Limited Partner" means a Common Limited Partner or a Preferred Limited
Partner, and "Limited Partners" means the Common Limited Partners and the
Preferred Limited Partners.
"Limited Partner Interest" means a Common Limited Partner Interest or a
Preferred Limited Partner Interest, and "Limited Partner Interests" means the
Common Limited Partner Interests and the Preferred Limited Partner Interests.
"Liquidating Events" has the meaning set forth in Section 13.1 hereof.
"Liquidation Preference Amount" means with respect to any Preferred
Limited Partner Interest, the amount payable with respect to such Preferred
Limited Partner Interest (as established by the General Partner at the time of
issuance thereof and set forth in the Designation Instrument with respect to
such Preferred Limited Partner Interest made a part of this Agreement as set
forth in Section 4.5.F hereof) upon the voluntary or involuntary dissolution,
liquidation, winding-up or termination of the Partnership, or upon the stated
maturity of such Preferred Limited Partner Interest or upon the earlier
redemption of such Preferred Limited Partner Interests, as the case may be,
other than in any such case any accrued and unpaid distributions payable at such
time.
"Liquidator" has the meaning set forth in Section 13.2 hereof.
"L.P. Per Unit Contribution" has the meaning set forth in Section
4.5.H(1).
"Majority-In-Interest of the Common Limited Partners" means those Common
Limited Partners holding in the aggregate more than fifty percent (50%) of the
Percentage Interests of the Common Limited Partners, as a class.
"Maximum DRIP Limited Partner Investment Amount" means with respect to
each DRIP/ACP Investment Date a dollar amount equal to (A) the Maximum Limited
Partner Investment Amount times (B) the DRIP Percentage.
"Maximum Limited Partner Investment Amount" means with respect to each
DRIP/ACP Investment Date a dollar amount equal to (A) the DRIP/ACP Investment
Amount for such DRIP/ACP Investment Date divided by 1 minus the aggregate of the
Junior Percentage Interests of the Original Limited Partners in the Partnership
in effect as of the close of business on the third business day immediately
preceding such DRIP/ACP Investment Date, minus (B) such DRIP/ACP Investment
Amount.
"Miscellaneous Rights Agreement" means the Miscellaneous Rights Agreement
dated March 20, 1996, as amended, among Irvine Apartment Communities, the
Partnership and The Irvine Company, as such agreement may be further amended,
modified or restated from time to time.
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<PAGE> 20
"Net Income" and "Net Loss" means, for each Partnership Year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such year, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
(a) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing
Net Income (or Net Loss) pursuant to this definition of Net Income
or Net Loss shall be added to (or subtracted from) such taxable
income (or loss);
(b) Any expenditure of the Partnership described in Code
Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B)
expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) not
otherwise taken into account in computing Net Income (or Net Loss)
pursuant to this definition of Net Income (or Net Loss), shall be
subtracted from (or added to) such taxable income (or loss);
(c) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to subparagraph (b) or subparagraph (c)
of the definition of Gross Asset Value, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Net Income or
Net Loss;
(d) Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost
recovery deductions that would otherwise be taken into account in
computing such taxable income or loss, there shall be taken into
account Depreciation for such Partnership Year;
(f) To the extent an adjustment to the adjusted tax basis of
any Partnership asset pursuant to Code Section 734(b) or Code
Section 743(b) is required pursuant to Regulation Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in
liquidation of a Partner's interest in the Partnership, the amount
of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of
the asset and shall be taken into account for purposes of computing
Net Income or Net Loss; and
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<PAGE> 21
(g) Notwithstanding any other provision of this definition
of Net Income or Net Loss, any item which is specially allocated
pursuant to Section 6.2.B hereof shall not be taken into account in
computing Net Income or Net Loss. The amounts of the items of
Partnership income, gain, loss or deduction available to be
specially allocated pursuant to Section 6.2.B hereof shall be
determined by applying rules analogous to those set forth in this
definition of Net Income or Net Loss.
"New Securities" means (i) any rights, options, warrants or convertible or
exchangeable securities having the right to subscribe for or purchase REIT
Shares, excluding grants under the General Partner's Stock Incentive Plans, or
(ii) any Debt issued by the General Partner that provides any of the rights
described in clause (i).
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"Notice of Cash Tender" means the Notice of Cash Tender substantially in
the form of Exhibit C to this Agreement.
"Notice of Exchange" means the Notice of Exchange substantially in the
form of Exhibit B to this Agreement.
"Original Limited Partner" means (i) a Common Limited Partner who was a
Partner on the Effective Date, (ii) an Affiliate of a Common Limited Partner
described in clause (i) of this definition or an Irvine Person that acquires one
or more Common Limited Partner Units pursuant to Section 11.3.A hereof or (iii)
a Person that acquired one or more Common Limited Partner Units from an Original
Limited Partner pursuant to a Pledge.
"Ownership Limit" means the applicable restriction on ownership of shares
of the General Partner imposed under the Certificate of Incorporation.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
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<PAGE> 22
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined
in accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement together with
all obligations of such Person to comply with the terms and provisions of this
Agreement. A Partnership Interest may be expressed as a number of Partnership
Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules and Regulations Section
1.704-2(d).
"Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash under Section 5.1 hereof with
respect to a class or series of Partnership Interests, which record date in the
case of distributions with respect to the General Partner Interest and Common
Limited Partner Interests shall generally be the same as the record date
established by the General Partner for a distribution to its stockholders of
some or all of its portion of such distribution.
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Partners issued pursuant to Article 4 hereof. The ownership of
Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time on behalf of the Partnership.
Partnership Units shall be either General Partner Units, Preferred Limited
Partner Units or Common Limited Partner Units and, without limitation on the
authority of the General Partner set forth in Article 4 hereof, the General
Partner may designate, in accordance with the provisions of this Agreement,
Limited Partner Units, when issued, as Common Limited Partner Units or Preferred
Limited Partner Units and may designate one of more series of Preferred Limited
Partner Units.
"Partnership Year" means the taxable year of the Partnership, which shall
be the fiscal year ending December 31, until such time as the Code requires a
change of the taxable year.
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"Percentage Interest" means, as to each Partner as the context may
require, (i) with respect to any class or series of Partnership Units held by
such Partner, its interest in such class or series of Partnership Units as
determined by dividing the Partnership Units of such class or series owned by
such Partner by the total number of Partnership Units of such class or series
then outstanding as specified in Exhibit A attached hereto, as such Exhibit may
be amended from time to time, or (ii) its interest in the Junior Partnership
Interests determined as set forth in the definition of Junior Percentage
Interest.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"Pledge" means the pledge by a Limited Partner of all or any portion of a
Partnership Interest to a Person, which is not an Affiliate of such Limited
Partner, as collateral or security for a bona fide loan or other extension of
credit, and the transfer of such pledged Partnership Interest to such Person in
connection with the exercise of remedies under such loan or extension or credit.
"Preferred Limited Partner" means a Person named as a Preferred Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Preferred Limited Partner in the Partnership.
"Preferred Limited Partner Interest" means a Partnership Interest issued
from time to time pursuant to Section 4.5.F of this Agreement that is designated
by the General Partner at the time of its issuance as a Preferred Limited
Partner Interest. In accordance with Section 4.5.F hereof, Preferred Limited
Partner Interests may be issued in series with each such series having such
designations, powers, preferences and relative, participating, optional or other
special rights, powers and privileges, including voting and conversion rights
and rights, powers and privileges senior to the General Partner Interest and the
Common Limited Partner Interests as shall be determined by the General Partner
at the time of issuance subject to the requirements of Section 4.5 hereof and
set forth in a Designation Instrument. A Preferred Limited Partner Interest of a
series may be expressed as a number of Partnership Units (each a "Preferred
Limited Partner Unit").
"Pricing Agreements" has the meaning set forth in Section 8.6.E(2) hereof.
"Pricing Information" has the meaning set forth in Section 8.6.E(3)
hereof.
"Primary Offering Notice" has the meaning set forth in Section 8.6.G(5)
hereof.
"Prior Agreement" has the meaning set forth in the third WHEREAS clause of
this Agreement, which Prior Agreement is amended and restated in its entirety by
this Agreement.
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<PAGE> 24
"Prior Agreement Effective Date" means December 1, 1993.
"Pro Rata Contribution" has the meaning set forth in Section 4.5.G hereof.
"Pro Rata Participation" has the meaning set forth in Section 4.5.G
hereof.
"Property" shall mean any property or assets of the Partnership including,
without limitation, any Apartment Community Project in which the Partnership or
any Property Partnership, directly or indirectly, acquires ownership of a fee or
leasehold interest.
"Property Partnership" shall mean and include the Existing Property
Partnership and any partnership or other entity in which the Partnership is or
becomes a partner or other equity participant and which is formed for the
purpose of acquiring, developing or owning a Property or a proposed Property.
"Property Partnership Agreement" shall mean and include the partnership
agreement of the Existing Property Partnership and any partnership agreement or
any joint venture or other similar agreement (as any of the foregoing may be
amended, modified or supplemented from to time) under which a Property
Partnership is constituted or by which it is governed.
"Property Partnership Interests" shall mean and include the Existing
Property Partnership Interest and, with respect to any Property Partnership in
which the Partnership becomes a partner or other equity participant after the
date hereof, the interest or interests of the Partnership as a partner or other
equity participant in such Property Partnership.
"Property Trustee" shall mean the entity acting as Property Trustee under
the Declaration of Trust.
"Public Offering Funding" shall have the meaning set forth in Section
8.6.C hereof.
"Public Offering Funding Amount" means the dollar amount equal to (i) the
product of (x) the number of Registrable Shares sold in a Public Offering
Funding and (y) the public offering price per share of such Registrable Shares
in such Public Offering Funding, less (ii) the aggregate underwriting discounts
and commissions in such Public Offering Funding.
"Qualified Transferee" means an "Accredited Investor" as defined in Rule
501 promulgated under the Securities Act.
"Registrable Shares" has the meaning set forth in Section 8.6.C(1) hereof.
"Regulations" means the applicable income tax regulations under the Code
whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).
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<PAGE> 25
"Regulatory Allocations" has the meaning set forth in Section 6.2.B(8)
hereof.
"REIT" means a real estate investment trust under Section 856 of the Code.
"REIT Share" shall mean a share of common stock, par value $.01 per share,
of the General Partner.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Common Limited Partner Units tendered by a Tendering
Partner pursuant to Section 8.6 hereof, multiplied by the Conversion Factor;
provided that in the event the General Partner issues to all holders of REIT
Shares as of a certain record date rights, options, warrants or convertible or
exchangeable securities entitling the stockholders of the General Partner to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, the "rights") that have been declared (i) prior to, on or after
the date of a Notice of Exchange, with a record date within the period starting
on the date of the Notice of Exchange and ending on the day preceding the
Specified Exchange Date then the REIT Shares Amount shall also include such
rights that a holder of that number of REIT Shares would be entitled to receive
and (ii) prior to, on or after a Notice of Cash Tender, with a record date
within the period starting on the date of the Notice of Cash Tender and ending
on the day preceding the Specified Cash Tender Date then the General Partner
shall adjust the Cash Amount in good faith to reflect the increased value of the
REIT Shares.
"Related Party" means (i) The Irvine Company and (ii) any other Person
whose ownership of REIT Shares would be attributed to Donald L. Bren under
Section 544 of the Code.
"Second Offering" means the underwritten public offering of up to
5,750,000 REIT Shares referred to in the Funding Notice dated July 18, 1995.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Single Funding Notice" has the meaning set forth in Section 8.6.C(2)
hereof.
"Specified Cash Tender Date" means the Business Day next following the
date of the closing of the Public Offering Funding.
"Specified Exchange Date" means, subject to Section 8.6.G (7) and
compliance with the requirements of Section 8.6.I, the fifth (5th) Business Day
after receipt by the General Partner of a Notice of Exchange.
"Subsequent Cash Tender" has the meaning set forth in Section 8.6.G(5)
hereof.
"Subsequent Cash Tender Notice" has the meaning set forth in Section
8.6.G(5) hereof.
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"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person; provided, however, that, with respect to
the Partnership, "Subsidiary" shall mean only a partnership of which the
Partnership is a partner unless the General Partner has received an unqualified
opinion from independent counsel of recognized standing, or a ruling from the
Internal Revenue Service, that the ownership of shares of stock of a corporation
or other entity will not jeopardize the General Partner's status as a REIT in
which event the term "Subsidiary" shall include the corporation or other entity
which is the subject of such opinion or ruling.
"Substituted Limited Partner" means a Person who is admitted as either a
Preferred Limited Partner or Common Limited Partner to the Partnership pursuant
to Section 11.4 hereof.
"SVC" means Stonecrest Village Company, LLC, a California limited
liability company.
"Tandem Project" means the proposed development on the Tandem Property
contemplated by applications numbered 5-Z-96, 14-U-96 and 21-EA-96 on file with
the City of Cupertino, summarized in that certain letter dated December 11,
1996, prepared by the Community Development Department of the City of Cupertino
and approved by the Partnership.
"Tandem Property" means that certain real property located in the City of
Cupertino, State of California, which TRC has an option to purchase pursuant to
that certain Purchase Agreement dated May 1, 1996, by and between Tandem
Computers Incorporated, as seller, and TRC, as buyer, and more particularly
described therein.
"Tax Item" means, with respect to each Partnership Year, each item of
income, gain, loss, credit and deduction of the Partnership for purposes of the
Code and the Regulations.
"Tendered Units" has the meaning set forth in Section 8.6.A hereof.
"Tendering Partner" has the meaning set forth in Section 8.6.A hereof.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"TRC" means Thompson Residential Company, Inc., a California corporation.
"TRC Contribution Agreement" means that certain Contribution Agreement by
and between the Partnership and TRC, dated as of December 20, 1996.
"TRC Shares" means issued and outstanding shares of all classes of stock
in TRC.
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<PAGE> 27
"TRC Shareholder" has the meaning set forth in Section 11.3.F(1).
"TRC Shareholder Incapacity" has the meaning set forth in Section
11.3.F(3).
"Transfer" means any sale, assignment, bequest, conveyance, devise, gift,
encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or
act of alienation, whether voluntary or involuntary, or by operation of law.
"Twelve-Month Period" means the twelve-month period ending on the day
before the first anniversary of the Effective Date or on a subsequent
anniversary thereof.
"Unit Value" for purposes of Sections 8.6.J and Sections 11.3.F(2),
11.3.F(3) and 11.3.F(4) shall mean on any day the product of the market price of
a REIT Share (determined as provided in the definition of "Value") on such day
multiplied by the Conversion Factor on such day.
"Value" means on any date with respect to a REIT Share, the market price
on such date or, if such date is not a trading day, then the market price on the
immediately preceding day which is a trading day, provided that for purposes of
determining the Cash Amount with respect to Tendered Units of a Tendering
Partner, the term "Value" shall mean the average of the daily market prices for
ten (10) consecutive trading days immediately preceding the date of receipt by
the General Partner of a Notice of Cash Tender. The market price for any such
trading day shall be: (i) if the REIT Shares are listed or admitted to trading
on any securities exchange or the Nasdaq National Market System, the closing
price, regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case as
reported in the principal consolidated transaction reporting system, (ii) if the
REIT Shares are not listed or admitted to trading on any securities exchange or
the Nasdaq National Market System, the last reported sale price on such day or,
if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
General Partner, or (iii) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the Nasdaq National Market System and no
such last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by the General Partner, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than 10 days
prior to the date in question) for which prices has been so reported; provided
if there are no bid and asked prices reported during the 10 days prior to the
date in question, the Value of the REIT Shares shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights (as defined in the definition of
REIT Shares Amount) that a holder of REIT Shares would be entitled to receive,
then the Value of such rights shall be determined by the General Partner acting
in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate.
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"Withdrawing Partner" has the meaning set forth in Section 8.6.E(3)
hereof.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1. Formation; Continuation
The Partnership is a limited partnership formed and continued pursuant to
the provisions of the Act and upon the terms and conditions set forth in the
Prior Agreement. The Partners hereby continue the Partnership pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement which amends and restates the Prior Agreement in its entirety as of
the date hereof. Except as expressly provided herein to the contrary, the rights
and obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
Section 2.2. Name
The name of the Partnership is Irvine Apartment Communities, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner.
Section 2.3. Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of
Delaware is located at 1209 Orange Street, Wilmington, Delaware 19801, and the
registered agent for service of process on the Partnership in the State of
Delaware at such registered office is the Corporation Trust Company. The
principal office of the Partnership is located at 550 Newport Center Drive,
Newport Beach, California 92660 or such other place as the General Partner may
from time to time designate by notice to the Limited Partners. The Partnership
may maintain offices at such other place or places within or outside the State
of Delaware as the General Partner deems advisable.
Section 2.4. Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
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(1) execute, swear to, seal, acknowledge, deliver, file and
record in the appropriate public offices (a) all certificates,
documents and other instruments (including, without limitation, this
Agreement and the Certificate and all amendments or restatements
thereof) that the General Partner or the Liquidator deems
appropriate or necessary to form, qualify or continue the existence
or qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability to
the extent provided by applicable law) in the State of Delaware and
in all other jurisdictions in which the Partnership may conduct
business or own property; (b) all instruments that the General
Partner deems appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement in accordance
with its terms; (c) all conveyances and other instruments or
documents that the General Partner deems appropriate or necessary to
reflect the dissolution and liquidation of the Partnership pursuant
to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all conveyances and other
instruments or documents that the General Partner deems appropriate
or necessary to reflect the distribution or exchange of assets of
the Partnership pursuant to the terms of this Agreement; (e) all
instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events described
in, Article 11, 12 or 13 hereof or the Capital Contribution of any
Partner; and (f) all certificates, documents and other instruments
relating to the determination of the rights, preferences and
privileges of Partnership Interests; and
(2) execute, swear to, seal, acknowledge and file all
ballots, consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole discretion of the
General Partner, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action which is made or
given by the Partners hereunder or is consistent with the terms of
this Agreement or appropriate or necessary, in the sole discretion
of the General Partner, to effectuate the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article 14 hereof or
as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner to act as
contemplated by this Agreement in any filing or other action by it on behalf of
the Partnership, and it shall survive and not be affected by the subsequent
Incapacity of any Limited Partner or Assignee and the Transfer of all or any
portion of a Limited Partner's or Assignee's Partnership Units and shall extend
to a Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each Limited Partner or Assignee hereby agrees to be bound by
any representation made by the General Partner, acting in
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good faith pursuant to such power of attorney, and each Limited Partner or
Assignee hereby waives any and all defenses which may be available to contest,
negate or disaffirm the action of the General Partner, taken in good faith under
such power of attorney. Each Limited Partner or Assignee shall execute and
deliver to the General Partner or the Liquidator, within fifteen (15) days after
receipt of the General Partner's or Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
Section 2.5. Term
The term of the Partnership commenced on November 15, 1993, the date the
original Certificate was filed in the office of the Secretary of State of
Delaware in accordance with the Act, and shall continue until December 31, 2092,
unless the Partnership is dissolved sooner pursuant to the provisions of Article
13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1. Purpose and Business
The purpose and nature of the Partnership is (i) to conduct the business
of the ownership, construction, development and operation of multifamily rental
apartment communities, (ii) to enter into any partnership, joint venture or
other similar arrangement to engage in any business permitted by clause (i), or
to own interests in any entity engaged in any business permitted by clause (i)
and (iii) to do anything necessary or incidental to the foregoing, provided,
however, such business and arrangements and interests shall be limited to and
conducted in such a manner as to permit the General Partner at all times to be
classified as a REIT.
Section 3.2. Powers
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, provided that the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole discretion, (i) could adversely affect the ability
of the General Partner to continue to qualify as a REIT, (ii) could subject the
General Partner to any additional taxes under Section 857 or Section 4981 of the
Code, or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner or its securities or the
Partnership, unless such action (or inaction) described in
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subclauses (i)-(iii) above shall have been specifically consented to by the
General Partner in writing.
Section 3.3. Partnership Only for Purposes Specified
The Partnership shall be a partnership only for the purposes specified in
Section 3.1 hereof, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any Debt or other obligation of another Partner, nor
shall the Partnership be responsible or liable for any Debt or other obligation
of any Partner, incurred either before or after the execution and delivery of
this Agreement by such Partner, except as to those responsibilities,
liabilities, Debt or obligations incurred pursuant to and as limited by the
terms of this Agreement and the Act.
Section 3.4. Representations and Warranties by the Parties
A. Each Person that is an individual, as a condition to becoming an
Additional Limited Partner or a Substituted Limited Partner, as the case may be,
shall represent and warrant to each other Partner that (i) the consummation of
the transactions contemplated by this Agreement to be performed by such Partner
will not result in a breach or violation of, or a default under, any material
agreement by which such Partner or any of such Partner's property is or are
bound, or any statute, regulation, order or other law to which such Partner is
subject, (ii) such Partner is not a "foreign person" within the meaning of Code
Section 1445(f) nor a "foreign partner" within the meaning of Code Section
1446(e), and (iii) this Agreement is binding upon, and enforceable against, such
Partner in accordance with its terms.
B. Each Person that is not an individual represents and warrants to
each other Partner as a condition to becoming a Limited Partner that (i) all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including without limitation, that of its
general partner(s), committee(s), trustee(s), beneficiaries, directors and/or
shareholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its partnership agreement, trust agreement, charter or by-laws, as the case may
be, any material agreement by which such Partner or any of such Partner's
properties or any of its partners, beneficiaries, trustees or shareholders, as
the case may be, is or are bound, or any statute, regulation, order or other law
to which such Partner or any of its partners, trustees, beneficiaries or
shareholders, as the case may be, is or are subject, (iii) such Partner is
neither a "foreign person" within the meaning of Code Section 1445(f) nor a
"foreign partner" within the meaning of Code Section 1446(e), and (iv) this
Agreement is binding upon, and enforceable against, such Partner in accordance
with its terms.
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C. Each Partner represents, warrants and agrees that it has acquired
and continues to hold its interest in the Partnership for its own account for
investment only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances except as permitted under Article 11
hereof. Each Partner further represents and warrants that it is a sophisticated
investor, able and accustomed to handling sophisticated financial matters for
itself, particularly real estate investments, and that it has a sufficiently
high net worth that it does not anticipate a need for the funds it has invested
in the Partnership in what it understands to be a highly speculative and
illiquid investment.
D. The representations and warranties contained in Sections 3.4.A,
3.4.B and 3.4.C hereof shall survive the execution and delivery of this
Agreement by each Partner (and a Person's being admitted as a Substituted
Limited Partner or an Additional Limited Partner pursuant to Sections 11.4 or
12.2 hereof) and the dissolution, liquidation and termination of the
Partnership.
E. Each Partner hereby acknowledges that no representations as to
potential profit, cash flows, funds from operations or yield, if any, in respect
of the Partnership or the General Partner have been made by any Partner or any
employee or representative or Affiliate of any Partner, and that projections and
any other information, including, without limitation, financial and descriptive
information and documentation, which may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1. Capital Contributions of the Partners
At the time of the execution of this Agreement, the Capital Contributions
of the Partners are as set forth in Amendment No. 26 to Exhibit A to this
Agreement. To the extent the Partnership acquires in the future any property by
the merger of any other Person into the Partnership, Persons who receive
Partnership Interests in exchange for their interests in the Person merging into
the Partnership shall become Partners and shall be deemed to have made Capital
Contributions as provided in the applicable merger agreement and as set forth in
an amendment to Exhibit A. Each Partner shall own Partnership Units in the
amount set forth for such Partner in Exhibit A, as the same may be amended from
time to time, and shall have a Percentage Interest in the Junior Partnership
Interests or in a series of Preferred Limited Partnership Interests as set forth
for such Partner in Exhibit A, as the same may be amended from time to time,
which Percentage Interest shall be adjusted in Exhibit A from time to time by
the General Partner to the extent necessary to reflect accurately sales,
exchanges or other Transfers,
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redemptions, Capital Contributions, the issuance of additional Partnership
Units, or similar events having an effect on a Partner's Percentage Interest.
In the event a Contingent Contribution Value (as defined in the TRC
Contribution Agreement) is payable to TRC in additional Common Limited Partner
Units as provided in such TRC Contribution Agreement, then Exhibit A shall be
further amended (i) so that the "Gross Asset Value of Contributed Property" set
forth opposite the name of TRC in Exhibit A shall be increased by the amount of
such Contingent Contribution Value and (ii) the number of Common Limited Partner
Units owned by TRC and the Percentage Interests of the General Partner and all
the Common Limited Partners in the Junior Partnership Interests set forth in
Exhibit A shall be revised accordingly. For purposes of the definition of Gross
Asset Value, the General Partner, The Irvine Company and TRC agree that the
amount set forth opposite the name of TRC under "Gross Asset Value of
Contributed Property" in Exhibit A, as the same may be increased as described
above, constitutes the fair market value of the assets contributed by TRC to the
Partnership. At the Contingent Contribution Value Payment Date (as defined in
such TRC Contribution Agreement), in the event that the Partnership is obligated
to issue TRC additional Common Limited Partner Units, then the General Partner
shall issue TRC a certificate representing such Common Limited Partner Units,
and Exhibit A shall be modified accordingly as provided above. The Partners
acknowledge and agree that this paragraph reflects the provisions of Sections 16
and 17 of Amendment No. 7 of the Prior Agreement.
Section 4.2. Additional Capital Contribution and Loans Generally
Except as otherwise required by law, the Partners shall have no obligation
to make any additional Capital Contributions or loans to the Partnership.
Section 4.3. Land Rights Agreement; Property Acquisitions
A. Upon the acquisition of any Property by the General Partner pursuant
to the Land Rights Agreement for REIT Shares, the General Partner will promptly
contribute such Property to the Partnership. Upon such contribution the
Partnership will be deemed to have issued to the General Partner a number of
General Partner Units equal to the number of REIT Shares issued by the General
Partner in such acquisition divided by the Conversion Factor in effect on the
date of issuance of such REIT Shares, and the Junior Percentage Interest of the
General Partner and all other Common Limited Partners shall be adjusted based on
that number of Partnership Units.
B. Upon the acquisition of Property pursuant to the Land Rights
Agreement for an additional Common Limited Partner Interest, the Partnership
will issue a number of Common Limited Partner Units equal to the amount of
Common Limited Partner Units determined pursuant to the Land Rights Agreement,
and the Junior Percentage Interest of the Property transferor, the General
Partner and all other Common Limited Partners shall be adjusted based on that
number of Partnership Units.
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Section 4.4. Loans by Third Parties
Subject to Section 4.5 hereof, the Partnership may incur Debt, or enter
into other similar credit, guarantee, financing or refinancing arrangements for
any purpose (including, without limitation, in connection with any further
acquisition of Properties) from any Person upon such terms as the General
Partner determines appropriate; provided that, any Debt which refinances Debt
outstanding upon the closing of the Initial Public Offering, shall be
non-recourse to the General Partner, except to the extent otherwise agreed to by
the General Partner.
Section 4.5. Additional Funding and Capital Contributions
A. General. The General Partner may, at any time and from time to time
determine that the Partnership requires additional funds ("Additional Funds")
for the acquisition of additional Properties or for such other purposes as the
General Partner may determine. Additional Funds may be raised by the
Partnership, at the election of the General Partner, in any manner provided in,
and in accordance with, the terms of this Section 4.5. Except as set forth in
this Section 4.5, no Person shall have any preemptive, preferential,
participation or similar right or rights to subscribe for or acquire any
Partnership Interest. Capital Contributions received pursuant to Section 11.7.C
will not be subject to Section 4.5.A.
B. Notice of Additional Capital Contributions. Except as provided in
the last sentence of Section 4.5.G, the General Partner shall give written
notice (the "Funding Notice") to the Original Limited Partners of the need for
Additional Funds and the anticipated source(s) thereof.
C. General Partner Loans. The General Partner, subject to Section 4.5.G
below, may enter into a Funding Debt including, but not limited to, a Funding
Debt that is convertible into REIT Shares and lend the Additional Funds to the
Partnership (a "General Partner Loan"). If the General Partner enters into such
a Funding Debt, the General Partner Loan will consist of the net proceeds from
such Funding Debt and, to the extent permitted by law, will be on the same terms
and conditions, including interest rate and repayment schedule, and providing
for the reimbursement of costs and expenses, as shall be applicable with respect
to or incurred in connection with such Funding Debt. Otherwise, all General
Partner Loans made pursuant to this Section 4.5 shall be on terms and conditions
no less favorable to the Partnership than would be available to the Partnership
from any third party.
D. Additional Limited Partners. The General Partner on behalf of the
Partnership may raise all or any portion of the Additional Funds by accepting
additional Capital Contributions (i) in the case of cash, subject to Section
4.5.G, from any Partners or any third party or (ii) in the case of property
other than cash, from any Partner and/or third parties, and either (A) in the
case of Partners, increasing such Partner's Partnership Interest, or (b) in the
case of a third party, admitting such third party as an Additional Limited
Partner. Subject to the terms
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of this Section 4.5 and to the definition of Gross Asset Value, the General
Partner shall determine in good faith the amount, terms and conditions of such
additional Capital Contributions.
E. Issuance of Shares or Securities by the General Partner. The General
Partner shall not issue any additional REIT Shares (other than REIT Shares
issued pursuant to Section 4.3.A, 4.6, 4.8 or 8.6 hereof or pursuant to a
dividend or distribution (including any stock split) of REIT Shares to all of
its stockholders), shares of preferred stock of the General Partner or New
Securities unless (i) the General Partner shall make a Capital Contribution of
the proceeds from the issuance of such additional REIT Shares, shares of
preferred stock or New Securities, as the case may be, and from the exercise of
the rights contained in such additional New Securities, as the case may be,
provided that with respect to any issuance of preferred stock of the General
Partner or New Securities, the General Partner at its option may, in lieu of
making a Capital Contribution and issuing Preferred Limited Partner Interests to
the General Partner as provided in Section 4.5.F hereof, loan the proceeds from
the issuance of such shares of preferred stock or New Securities to the
Partnership on a subordinated basis, such loan to be on terms and conditions no
less favorable to the Partnership than would be available to the Partnership
from a third party, and (ii) the General Partner shall have delivered to the
Original Limited Partners a Funding Notice regarding the securities to be
issued.
F. Issuances of Additional Limited Partner Interests. In accordance
with this Section 4.5, the General Partner is hereby authorized, without the
consent of the Limited Partners, other than as provided in Section 7.3.D hereof
or in a Designation Instrument, to cause the Partnership from time to time to
issue to the Partners (including the General Partner) or other Persons Common
Limited Partner Interests (in addition to Common Limited Partner Interests
issued in accordance with Sections 4.3.B and 4.8.A hereof) and Preferred Limited
Partner Interests. Preferred Limited Partner Interests may be issued in one or
more series, with such rights and powers senior to the General Partner Interest
and the Common Limited Partner Interests and such other rights, powers and
duties as shall be determined by the General Partner in its sole and absolute
discretion subject to the Act and Delaware law and as set forth in a Designation
Instrument, including, without limitation, (i) the allocations of Tax Items to
Preferred Limited Partner Interests as a class or to a specific series of
Preferred Limited Partner Interests, (ii) the rights of a series of Preferred
Limited Partner Interests to share in Partnership distributions of Available
Cash, and (iii) the rights of a series of Preferred Limited Partner Interests
upon dissolution, liquidation, winding-up or termination of the Partnership,
including, without limitation, the Liquidation Preference Amount with respect to
such series. Notwithstanding the foregoing, no Preferred Limited Partner
Interests shall be issued to the General Partner unless (i) the Preferred
Limited Partner Interests are issued in connection with an issuance of preferred
stock of the General Partner which shares of preferred stock have designations,
preferences and other rights such that the economic interests attributable to
such shares of preferred stock are substantially similar to the designations,
preferences and other rights of the Preferred Limited Partner Interests issued
to the General Partner and (ii) the General Partner shall make a Capital
Contribution to the Partnership in accordance with Section 4.5.E in an amount
equal to the proceeds raised in connection with the issuance of such shares of
preferred stock of the General
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Partner. Unless otherwise specified in the Designation Instrument, with
respect to any series of Preferred Limited Partner Interests issued to the
General Partner or IAC Capital Trust in consideration of the proceeds received
by the General Partner or IAC Capital Trust from a concurrent offering of
preferred stock of the General Partner or preferred securities of IAC Capital
Trust, respectively, the General Partner or IAC Capital Trust, as the case may
be, shall be deemed to have made (notwithstanding the actual amount of the
contribution) a Capital Contribution to the Partnership in the amount of the
gross proceeds of such issuance of preferred stock or preferred securities, as
the case may be. Upon issuance of a series of Preferred Limited Partner
Interests, the Designation Instrument applicable to such series shall constitute
an amendment to this Agreement and shall become a part hereof whether or not
actually attached to this Agreement.
G. Participation Rights of Partners. The Funding Notice delivered by
the General Partner prior to its making or accepting (on behalf of the
Partnership) any additional cash Capital Contributions pursuant to Section
4.5.A, 4.5.D, 4.5.E or, if any Preferred Limited Partner Interests are
convertible into, or exercisable or exchangeable for, Common Limited Partner
Interests or REIT Shares or securities whether issued by the Partnership or the
General Partner which are convertible into, or exercisable or exchangeable for,
REIT Shares, 4.5.F hereof shall contain the total amount of additional Capital
Contributions sought to be made to the Partnership, and the terms and conditions
pertaining thereto. Except as provided in the last sentence of this Section
4.5.G, each Original Limited Partner then holding a Common Limited Partner
Interest may elect to make an additional Capital Contribution not to exceed the
product of (i) the total amount of additional Capital Contributions being
sought, and (ii) such Partner's Junior Percentage Interest (with such product
deemed the "Pro Rata Contribution"). The Funding Notice delivered by the General
Partner prior to its making any loans to the Partnership pursuant to Section
4.5.C herein shall contain the total amount of the loan to be made to the
Partnership. Each Original Limited Partner then holding a Common Limited Partner
Interest may elect to participate in such loan in an amount not to exceed the
product of (i) the total amount of the loan, and (ii) such Limited Partner's
Junior Percentage Interest (with such product deemed the "Pro Rata
Participation"). Such election shall be made, if at all, by providing written
notice thereof (the "Election Notice") to the General Partner within fifteen
(15) days after delivery of the Funding Notice. Failure to respond to such
notice shall be deemed to be an election by such Original Limited Partner not to
make such Capital Contribution or participate in such loan. Such Election Notice
shall contain the amount of the additional Capital Contribution or the loan
participation, if any, the Original Limited Partner is to make (such additional
Capital Contribution not to exceed the respective Pro Rata Contribution of such
Original Limited Partner and such loan participation not to exceed the
respective Pro Rata Participation of such Original Limited Partner) equal to all
or any portion of its Pro Rata Contribution or Pro Rata Participation. No
Original Limited Partner shall have any participation right under this Section
4.5.G in connection with the Partnership raising Additional Funds through the
issuance of Preferred Limited Partner Interest to IAC Capital Trust unless such
Preferred Limited Partner Interests are convertible into, or exercisable or
exchangeable for, Common Limited Partner Interests or REIT Shares or securities
whether issued by the Partnership or the General Partner
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which are convertible into, or exercisable or exchangeable for, REIT Shares and
as a result no Funding Notice need be given to the Original Limited Partners in
connection therewith.
H. Percentage Interest Adjustments.
(1) Upon the acceptance of additional cash Capital Contributions
pursuant to this Section 4.5, the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution, provided that in connection with a Capital
Contribution by any Original Limited Partner pursuant to an Election Notice
under Section 4.5.G in response to (i) a Funding Notice relating to the Second
Offering, such Original Limited Partner shall be deemed to have contributed to
the Partnership an amount equal to the cash actually contributed by such
Original Limited Partner on the Adjustment Date, minus an amount equal to the
aggregate underwriting discounts and commissions that would have been applicable
to REIT Shares if the cash contributed by such Original Limited Partner on the
Adjustment Date had been used to acquire REIT Shares in the Second Offering, and
(ii) a Funding Notice relating to any offering of REIT Shares subsequent to the
Second Offering in which the amount of cash actually contributed by such
Original Limited Partner per Common Limited Partner Unit (the "L.P. Per Unit
Contribution") is greater than the amount of cash per General Partner Unit
actually contributed by the General Partner in respect of the REIT Shares sold
in such offering (the "G.P. Per Unit Contribution"), such Original Limited
Partner shall be deemed to have contributed to the Partnership an amount equal
to the cash actually contributed by such Original Limited Partner on the
Adjustment Date minus an amount equal to the product of (A) the L.P. Per Unit
Contribution minus the G.P. Per Unit Contribution and (B) the number of Common
Limited Partner Units purchased by such Original Limited Partner pursuant to
such Election Notice.
(2) Upon the acceptance of additional Capital Contributions pursuant to
this Section 4.5 in the form of Property other than cash, the amount of the
Capital Contribution shall be equal to the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
such Property is subject, and the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution; provided that with respect to the Capital
Contribution made by TRC pursuant to the TRC Contribution Agreement, the Junior
Percentage Interest of TRC, the General Partner and all other Common Limited
Partners shall be adjusted based on the number of Common Limited Partnership
Units issued from time to time to TRC pursuant to such TRC Contribution
Agreement as provided in Section 4.1.
(3) Upon the acceptance of additional Capital Contributions pursuant to
this Section 4.5 in the form of cash and other Property, the amount of the
Capital Contribution shall be equal to the sum of (A) the amount of cash
contributed on the Adjustment Date and (B) the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
the Property is
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subject, and the Percentage Interests of the Partners shall be adjusted based on
the number of Partnership Units issued in connection with such Capital
Contribution.
Section 4.6. Stock Incentive Plans
If at any time or from time to time, in connection with the General
Partner's Stock Incentive Plans, any stock options granted are duly exercised or
stock is issued in satisfaction of phantom stock unit grants, or stock becomes
non-forfeitable pursuant to a vesting provision:
A. The General Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership in an
amount equal to the exercise price paid to the General Partner by
such exercising party in connection with the exercise of the stock
option or the purchase price, if any, for such stock; and
B. Notwithstanding the amount of the Capital Contribution
actually made pursuant to Section 4.6.A above, the General Partner
shall be deemed to have contributed to the Partnership as a Capital
Contribution, in consideration of an additional General Partner
Interest, an amount equal to the Value as of the date of exercise
(provided, that, for these purposes, only the trading date on which
the purchase of the REIT Shares by such exercising party is
consummated shall be considered) or the date of delivery or vesting
of shares, as the case may be, multiplied by the number of REIT
Shares acquired under the General Partner's Stock Incentive Plans.
C. A Junior Percentage Interest adjustment shall be made
pursuant to the terms of Section 4.5.H in which the General Partner
shall be treated as having made a cash contribution equal to the
amount described in Section 4.6.B. hereof.
Section 4.7. No Third Party Beneficiary
No creditor or other third party having dealings with the Partnership
shall have the right to enforce the right or obligation of any Partner to make
Capital Contributions or loans or to pursue any other right or remedy hereunder
or at law or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be enforced solely
by, the parties hereto and their respective successors and assigns. None of the
rights or obligations of the Partners herein set forth to make Capital
Contributions or loans to the Partnership shall be deemed an asset of the
Partnership for any purpose by any creditor or other third party, nor may such
rights or obligations be sold, transferred or assigned by the Partnership or
pledged or encumbered by the Partnership to secure any debt or other obligation
of the Partnership or of any of the Partners.
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Section 4.8. DRIP/ACP Plans
A. If at any time or from time to time, in connection with the General
Partner's DRIP/ACP Plan, any REIT Shares are to be issued by the General Partner
out of its authorized but unissued REIT Shares in satisfaction of the General
Partner's obligations thereunder:
(1) Promptly following the close of business on the third
business day preceding each DRIP/ACP Investment Date but subject to
having received the notice referred to in clause (5) below, the
General Partner shall give notice (which shall constitute a Funding
Notice for purposes of Section 4.5.G.) to each Original Limited
Partner then holding a Common Limited Partner Interest of the
DRIP/ACP Investment Amount to be invested in newly issued REIT
Shares on such DRIP/ACP Investment Date. Such notice shall also set
forth the Maximum Limited Partner Investment Amount of the Original
Limited Partners and the percentage of the DRIP/ACP Investment
Amount constituting the DRIP Investment Amount (the "DRIP
Percentage") and the percentage constituting the ACP Investment
Amount.
(2) Not later than the close of business on the business day
immediately preceding each DRIP/ACP Investment Date, the Original
Limited Partners then holding Common Limited Partner Interests shall
give irrevocable written notice to the General Partner of whether
the Original Limited Partners or any one or more of them elect to
make a cash investment on such DRIP/ACP Investment Date (not to
exceed the Maximum Limited Partner Investment Amount) for the
purchase of additional Common Limited Partner Interests in order to
maintain the aggregate Junior Percentage Interest of the Original
Limited Partners in the Partnership. Such notice shall specify the
Actual Limited Partner Investment Amount if the amount to be
invested is less than the Maximum Limited Partner Investment Amount
and the identities of the Original Limited Partner(s) which will
make such cash investment, provided that the Original Limited
Partners shall have the right to designate any wholly owned
subsidiary of The Irvine Company as the entity which shall make a
Capital Contribution in respect of all or a portion of the Actual
Limited Partner Investment Amount (the Original Limited Partner(s)
or such subsidiary making the cash investment, the "Investing
Entities"). Failure by the Original Limited Partners to respond to
the Funding Notice shall be deemed an election by such Limited
Partners not to make any cash investment on such DRIP/ACP Investment
Date.
(3) The General Partner shall, as soon as practicable
following the DRIP/ACP Investment Date, make a Capital Contribution
to the Partnership in an amount equal to the DRIP/ACP Investment
Amount for such DRIP/ACP Investment Date, provided that
notwithstanding the amount of the Capital Contribution actually made
pursuant to the foregoing, the General Partner shall be
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deemed to have contributed to the Partnership as a Capital
Contribution, in consideration of an additional General Partner
Interest, an amount equal to the Value as of the date of issuance of
the REIT Shares issued by the General Partner on such DRIP/ACP
Investment Date pursuant to the DRIP/ACP Plan (provided, that, for
these purposes, only the DRIP/ACP Investment Date shall be
considered) multiplied by the number of REIT Shares issued on such
DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan. Upon such
contribution the Partnership will be deemed to have issued to the
General Partner a number of General Partner Units equal to the
number of newly issued REIT Shares issued by the General Partner on
such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan, and the
Junior Percentage Interest of the General Partner and all other
Common Limited Partners shall be adjusted based on that number of
Partnership Units.
(4) As soon as practicable following the DRIP/ACP Investment
Date, the Investing Entities shall make a Capital Contribution to
the Partnership in an amount equal to the Actual Limited Partner
Investment Amount for such DRIP/ACP Investment Date. Upon such
contribution the Partnership will issue a number of Common Limited
Partners Units equal to the Corresponding L.P. Unit Amount, and the
Junior Percentage Interest of the General Partner and the Common
Limited Partners shall be adjusted based on that number of
Partnership Units. Notwithstanding the amount of the Capital
Contribution actually made pursuant to the foregoing, each Investing
Entity shall be deemed to have contributed to the Partnership as a
Capital Contribution an amount equal to the Value as of the date of
issuance of the REIT Shares issued by the General Partner on such
DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan (provided,
that for these purposes, only the DRIP/ACP Investment Date shall be
considered) multiplied by the product of (i) the number of Common
Limited Partner Units issued to such Investing Entity and (ii) the
then current Conversion Factor.
(5) Promptly following the close of business on the third
business day preceding each DRIP/ACP Investment Date, the Original
Limited Partners shall give written notice to the General Partner of
(i) the number of REIT Shares beneficially owned by the Original
Limited Partners and Irvine Persons as of such close of business
(whether under the DRIP/ACP Plan or otherwise), (ii) the aggregate
amount of dividends to be paid with respect to such number of REIT
Shares, if any, which such Persons have elected to be reinvested in
newly issued REIT Shares on such DRIP/ACP Investment Date pursuant
to the DRIP/ACP Plan and (iii) the aggregate amount of additional
cash, if any, to be invested by all such Persons in newly issued
REIT Shares on such DRIP/ACP Investment Date pursuant to the
DRIP/ACP Plan. Such notice shall be provided by The Irvine Company
on behalf of all such Persons so long as The Irvine Company or any
of its Affiliates is the holder of a Common Limited Partner Interest
(and thereafter by the Original Limited Partner holding the largest
Junior Percentage Interest in
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the Partnership) and such information shall be used by the General
Partner in determining the DRIP/ACP Investment Amount for purposes
of the notice given by it pursuant to Section 4.8.A(1). In the event
the notice required by this clause (5) is not given by the close of
business on the second business day preceding a DRIP/ACP Investment
Date, the General Partner shall determine the DRIP/ACP Investment
Amount based on the following assumptions: (i) that the Original
Limited Partners and Irvine Persons beneficially own the number of
REIT Shares set forth in the most recent Form 3 or Form 4 or
Schedule 13G filed by such Persons pursuant to the Securities
Exchange Act of 1934, as amended, (ii) that such Persons will
reinvest pursuant to the DRIP/ACP Plan all the dividends to be paid
on such number of REIT Shares on the applicable DRIP/ACP Investment
Date and (iii) that each such Person will make on the applicable
DRIP/ACP Investment Date the maximum additional cash investment
permitted by the DRIP/ACP Plan to be made by such Person on such
DRIP/ACP Investment Date.
B. If at any time or from time to time, in connection with the General
Partner's DRIP/ACP Plan, any REIT Shares are to be issued by the General Partner
out of its authorized but unissued REIT Shares in satisfaction of the General
Partner's obligations under Section 4.2 of the Miscellaneous Rights Agreement:
(1) The General Partner shall, as soon as practicable, after
the issuance of such REIT Shares, make a Capital Contribution to the
Partnership in an amount equal to the price paid to the General
Partner for such REIT Shares as set forth in Section 4.2 of the
Miscellaneous Rights Agreement.
(2) Notwithstanding the amount of the Capital Contribution
actually made pursuant to Section 4.8.B(1) above, the General
Partner shall be deemed to have contributed to the Partnership as a
Capital Contribution, in consideration of an additional General
Partner Interest, an amount equal to the Value as of the date of
issuance of such REIT Shares (provided, that, for these purposes,
only the trade date on which the purchase of the REIT Shares is
consummated shall be considered) multiplied by the number of REIT
Shares issued pursuant to Section 4.2 of the Miscellaneous Rights
Agreement.
(3) The Partnership will be deemed to have issued to the
General Partner a number of General Partner Units equal to the
number of newly issued REIT Shares issued by the General Partner
pursuant to Section 4.2 of the Miscellaneous Rights Agreement and
the Junior Percentage Interest of the General Partner and all Common
Limited Partners shall be adjusted based on that number of
Partnership Units.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1. Requirements and Characterization of Distributions
The General Partner shall cause the Partnership to distribute quarterly
all, or such portion as the General Partner may in its discretion determine,
including, but not limited to, as a consequence of such reserves as the General
Partner may deem appropriate, of Available Cash generated by the Partnership
during such quarter to the Partners who are Partners on the applicable
Partnership Record Date with respect to such quarter in the following order of
priority:
(i) First, to the Preferred Limited Partners in such amount
as is required for the Partnership to pay all distributions with
respect to the Preferred Limited Partner Units held by such
Preferred Limited Partners due or payable in accordance with the
Designation Instrument or Instruments for such Preferred Limited
Partner Units through the last day of such quarter (or the last day
of the quarterly period set forth in such Designation Instrument or
Instruments); such distributions to be made to the Preferred Limited
Partners in such order of priority and with such preferences as have
been established with respect to such Preferred Limited Partner
Units as set forth in the Designation Instrument or Instruments; and
(ii) Then, to the General Partner and the Common Limited
Partners in accordance with their respective Junior Percentage
Interests on such Partnership Record Date.
Subject to the prior rights of holders of Preferred Limited Partner Units with
respect to distributions of Available Cash, the General Partner in its sole
discretion may distribute to the General Partner and the Common Limited Partners
Available Cash (excluding amounts previously distributed to Preferred Limited
Partners as provided above) in accordance with their Junior Percentage Interests
on a more frequent basis and provide for an appropriate record date. The General
Partner shall take such reasonable efforts consistent with its qualification as
a REIT, to cause the Partnership to distribute sufficient amounts to enable the
General Partner to pay stockholder dividends that will (a) satisfy the
requirements for qualifying as a REIT under the Code and Regulations, and (b)
avoid any federal income or excise tax liability of the General Partner .
Notwithstanding anything to the contrary contained herein, in no event
shall any Partner receive a distribution of Available Cash in respect of Junior
Partnership Interests with respect to any quarter or other period until such
time as the Partnership has distributed to the Preferred Limited Partners an
amount sufficient to pay all distributions payable with respect to the
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Preferred Limited Partner Interests held by such Preferred Limited Partners in
accordance with the Designation Instrument or Instruments through the last day
of the most recently ended quarterly period set forth in each such Designation
Instrument.
Section 5.2. Distributions in Kind
No right is given to any Partner to demand and receive property other than
cash. The General Partner may determine, in its sole discretion but subject to
the rights of Preferred Limited Partner Interests, to make a distribution in
kind to the General Partner and the Common Limited Partners of Partnership
assets, and such assets shall be distributed in such a fashion as to ensure that
the fair market value is distributed and allocated in accordance with Articles
5, 6 and 10 hereof.
Section 5.3. Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction, and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
13.2.
Section 5.4. Restricted Distributions
Notwithstanding any provision to the contrary contained herein, the
Partnership, and the General Partner on behalf of the Partnership, shall not
make a distribution to any Partner on account of its interest in the Partnership
if such distribution would violate Section 17-607 of the Act or other applicable
law.
ARTICLE 6
ALLOCATIONS
Section 6.1. Allocations in General
Except as otherwise provided in this Article 6, and subject to Section
11.6.C, Net Income and Net Loss will be allocated to each of the Partners at the
end of each calendar month using the interim closing of the books method and
taking into account varying interests in accordance with the greater part of the
month convention consistent with Section 11.6.C.
Section 6.2. Additional Allocation Provisions
A. Special Allocations
For each Partnership Year there shall be a special allocation to the
Original Limited Partners (other than SVC and any Person (including the Members
of SVC) to whom SVC
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Transfers its Common Limited Partner Interests) which when added to amounts
allocated under Section 6.1 and 6.3.B will result in a total allocation to such
Original Limited Partners of (i) all remaining low-income housing tax credits of
the Existing Property Partnership, determined solely by reference to the
adjusted tax basis of the assets of the Existing Property Partnership at June
30, 1995, allocated to the Partnership with respect to the Existing Property
Partnership Interest and (ii) all Depreciation allocated to the Partnership with
respect to the Existing Property Partnership Interest determined solely by
reference to the adjusted tax basis of the assets of the Existing Property
Partnership at June 30, 1995; it being understood that any additional low-income
housing tax credits becoming available to the Existing Property Partnership, and
any additional Depreciation resulting from increases to the adjusted tax basis
of the assets of the Existing Property Partnership, in each case from and after
July 1, 1995, shall not be subject to the special allocation provided for in
this clause (3). Except as provided in this Section 6.2.A, Depreciation shall be
allocated in accordance with Section 6.1 and 6.3.B.
B. Regulatory Allocations
Notwithstanding the foregoing provisions of this Article 6:
(1) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), if there is a net decrease in
Partnership Minimum Gain during any Partnership Year, each Partner
shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount
equal to such Partner's share of the net decrease in Partnership
Minimum Gain, as determined under Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to
each Partner pursuant thereto. The items to be allocated shall be
determined in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2). This Section 6.2.B(1) is intended to qualify as a
"minimum gain chargeback" within the meaning of Regulation Section
1.704-2(f) and shall be interpreted consistently therewith.
(2) Partner Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(i)(4) or in Section 6.2.B(1)
hereof, if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership
Year, each Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall
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be determined in accordance with Regulations Section 1.704-2(i)(4)
and 1.704-2(j)(2). This Section 6.2.B(2) is intended to qualify as a
"chargeback of partner nonrecourse debt minimum gain" within the
meaning of Regulation Section 1.704-2(i) and shall be interpreted
consistently therewith.
(3) Nonrecourse Deductions and Partner Nonrecourse
Deductions. Any Nonrecourse Deductions for any Partnership Year
shall be specially allocated to the Partners in accordance with
their Percentage Interests. Any Partner Nonrecourse Deductions for
any Partnership Year shall be allocated to each Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are attributable,
in accordance with Regulations Section 1.704-2(i).
(4) Qualified Income Offset. If any Partner unexpectedly
receives an adjustment, allocation or distribution described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
Partnership income and gain shall be allocated, in accordance with
Regulations Section 1.704-1(b)(2)(ii)(d), to the Partner in an
amount and manner sufficient to eliminate, to the extent required by
such Regulations, the Adjusted Capital Account Deficit of the
Partner as quickly as possible, provided that an allocation pursuant
to this Section 6.2.B(4) shall be made if and only to the extent
that such Partner would have an Adjusted Capital Account Deficit
after all other allocations provided in this Article 6 have been
tentatively made as if this Section 6.2.B(4) were not in the
Agreement. It is intended that this Section 6.2.B(4) qualify and be
construed as a "qualified income offset" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(5) Gross Income Allocation. If any Partner has a deficit
Capital Account at the end of any Partnership Year which is in
excess of the sum of (1) the amount (if any) such Partner is
obligated to restore to the Partnership, and (2) the amount such
Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), each such Partner shall be specially allocated items
of Partnership income and gain in the amount of such excess as
quickly as possible to eliminate such deficit, provided that an
allocation pursuant to this Section 6.2.B(5) shall be made if and
only to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations provided
in this Article 6 have been tentatively made as if this Section
6.2.B(5) and Section 6.2.B(4) were not in the Agreement.
(6) Limitation on Allocation of Net Loss. To the extent any
allocation of Net Loss would cause or increase an Adjusted Capital
Account Deficit as to any Partner, such allocation of Net Loss shall
be reallocated among the other Partners
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in accordance with their respective Partnership Interests, subject
to the limitations of this Section 6.2.B(6).
(7) Section 754 Adjustment. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4) to be taken into
account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of his interest in
the Partnership, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially
allocated to the Partners in accordance with their Percentage
Interests in the Partnership in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such
distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(8) Curative Allocation. The allocations set forth in
Sections 6.2.B(1), (2), (3), (4), (5), (6) and (7) hereof (the
"Regulatory Allocations") are intended to comply with certain
regulatory requirements, including the requirements of Regulations
Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of
Sections 6.1 and 6.2.A, the Regulatory Allocations shall be taken
into account in allocating other items of income, gain, loss and
deduction among the Partners so that, to the extent possible without
violating the requirements giving rise to the Regulatory
Allocations, the net amount of such allocations of other items and
the Regulatory Allocations to each Partner shall be equal to the net
amount that would have been allocated to each such Partner if the
Regulatory Allocations had not occurred.
C. Excess Nonrecourse Liability Allocation. For purposes of determining
a Partner's proportional share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Regulations Sections 1.752-3(a)(3), each
Partner's interest in Partnership profits shall be such Partner's Percentage
Interest.
D. Priority Allocation With Respect to Preferred Limited Partner
Interests. Notwithstanding any other provision of this Agreement, for each
Partnership Year, Partnership gross income shall be specially allocated to the
Preferred Limited Partners in an amount equal to the distributions received by
the Preferred Limited Partners pursuant to Section 5.1(i) hereof for such
Partnership Year (other than any distributions that are treated as being in
satisfaction of the Liquidation Preference Amount for any Preferred Limited
Partner Interest).
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Section 6.3. Tax Allocations
A. In General. Except as otherwise provided in this Section 6.3, for
income tax purposes each Tax Item shall be allocated among the Partners in the
same manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.1 and 6.2 hereof.
B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding
Section 6.3.A above, Tax Items with respect to Property of the Partnership that
is contributed to the Partnership with a Gross Asset Value that differs from its
basis in the hands of the contributing Partner immediately preceding the date of
contribution shall be allocated for income tax purposes pursuant to Regulations
promulgated under Section 704(c) of the Code to the extent of such difference
and thereafter in accordance with Section 6.3.A. The General Partner shall make
allocations in accordance with the deferred sale method of accounting with
respect to gain on such property if the Regulations under Section 704(c) of the
Code are applicable to the Contributed Properties of the Partnership.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1. Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on
loans and borrowing money to permit the Partnership to make
distributions to its Partners in such amounts as will permit
the General Partner or IAC Capital Trust (so long as the
General Partner or IAC Capital Trust, as applicable, qualifies
as a REIT) to avoid the payment of any federal income tax
(including, for this purpose, any excise tax pursuant to
Section 4981 of the Code) and to make distributions to its
stockholders sufficient to permit the
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General Partner or IAC Capital Trust to maintain REIT status),
provided that, except as provided in Section 10.4, the General
Partner is prohibited from lending money or permitting the
Partnership to lend money to any Irvine Person, the assumption
or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of indebtedness
(including the securing of same by deed to secure debt,
mortgage, deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations it
deems necessary for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the
Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership
(including the exercise or grant of any conversion, option,
privilege, or subscription right or any other right available
in connection with any assets at any time held by the
Partnership) or the merger or other combination of the
Partnership with or into another entity (all of the foregoing
subject to any prior approval only to the extent required by
Section 7.3 hereof), provided that, in the event of any sale,
exchange, ---- disposition or other transfer of any Property
of the Partnership, or the merger or other combination of the
Partnership with or into another entity, the Partnership shall
no later than the end of the calendar quarter in which such
sale, exchange, disposition, other transfer, merger or
combination becomes a taxable event to the General Partner or
any of the Common Limited Partners effect a distribution of
cash pro rata by Junior Percentage Interests (or, at the
option of the General Partner, a promissory note of the
Partnership, bearing interest (to the extent permitted by law)
at a rate per annum equal to the dividend yield on the REIT
Shares, based on the most recent quarterly dividend and the
Value as of the date of issuance of such note, and due and
payable as soon as reasonably practicable but in no event
later than 45 days after the date of issuance), in addition to
its then regular quarterly distribution with respect to the
Junior Partnership Interests, in an amount such that the pro
rata share thereof received by each such Partner shall equal
or exceed the total liability of such Partner for federal,
state and local income and franchise taxes resulting from such
sale, exchange, disposition, other transfer, merger or
combination and from such distribution as determined in
accordance with the books and records of the Partnership
(which determination will be conclusive and binding absent
manifest error).
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(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the
terms of this Agreement and on any terms it sees fit,
including, without limitation, the financing of the conduct of
the operations of the General Partner, the Partnership or any
of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the
Partnership's Subsidiaries) and the repayment of obligations
of the Partnership and its Subsidiaries and any other Person
in which it has an equity investment and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any real
property or improvements owned by the Partnership or any
Subsidiary of the Partnership;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the General
Partner's powers under this Agreement, including contracting
with contractors, developers, consultants, accountants, legal
counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the
Partnership's assets;
(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership,
any division of the Partnership or the General Partner
(including, without limitation, employees designated as
officers having titles such as "president", "vice president",
"secretary" and "treasurer" of the Partnership, any division
of the Partnership or the General Partner), and agents,
outside attorneys, accountants, consultants and contractors of
the Partnership, any division of the Partnership or the
General Partner and the determination of their compensation
and other terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
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(12) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it
deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property
to, its Subsidiaries and any other Person in which it has an
equity investment from time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution, or abandonment of, any claim, cause of
action, liability, debt or damages, due or owing to or from
the Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitrations or other
forms of dispute resolution, and the representation of the
Partnership in all suits or legal proceedings, administrative
proceedings, arbitrations or other forms of dispute
resolution, the incurring of legal expense, and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of
attorney, of any right, including the right to vote,
appurtenant to any asset or investment held by the
Partnership;
(16) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person in
which the Partnership has a direct or indirect interest, or
jointly with any such Subsidiary or other Person;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which
the Partnership does not have an interest, pursuant to
contractual or other arrangements with such Person;
(18) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
legal instruments or agreements in writing necessary or
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appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner
enumerated in this Agreement; and
(19) the issuance of additional Partnership Units as appropriate in
connection with Capital Contributions by Additional Limited
Partners and additional Capital Contributions by Partners
pursuant to Article 4 hereof.
B. Except as provided in Section 7.3 hereof, each of the Limited
Partners agrees that the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the Prior Agreement Effective Date, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the Properties of the Partnership and (ii)
liability insurance for the Indemnitees hereunder.
D. At all times from and after the Prior Agreement Effective Date, the
General Partner may cause the Partnership to establish and maintain any and all
reserves, working capital accounts and other cash or cash equivalents in such
amounts as the General Partner, in its sole discretion, deems appropriate and
reasonable from time to time.
E. In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner of any action taken by it. Except as otherwise
provided in the Declaration of Trust and Section 7.4.D hereof, the General
Partner and the Partnership shall not have liability to a Limited Partner under
any circumstances as a result of an income tax liability incurred by such
Limited Partner as a result of an action (or inaction) by the General Partner
pursuant to its authority under this Agreement so long as the action or inaction
is taken in good faith.
Section 7.2. Certificate of Limited Partnership
To the extent that such action is determined by the General Partner to be
reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other state or the District of Columbia, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 8.5.A(4)
hereof, the General Partner
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shall not be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of Delaware, the State of California,
and any other state, or the District of Columbia, in which the Partnership may
elect to do business or own property.
Section 7.3. Restrictions on General Partner's Authority
A. The General Partner may not take any action in contravention of this
Agreement, including, without limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided
in this Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
(3) admit a Person as a Partner, except as otherwise provided in this
Agreement;
(4) perform any act that would subject a Limited Partner to liability as
a general partner in any jurisdiction or any other liability except
as provided herein or under the Act; or
(5) enter into any contract, mortgage, loan or other agreement that
prohibits or restricts, or has the effect of prohibiting or
restricting (i) the General Partner or the Partnership from
satisfying its obligations under Section 8.6 in full or (ii) the
ability of a Common Limited Partner from exercising its rights under
Section 8.6 in full; except in each case with the written consent of
each Common Limited Partner affected by the prohibition or
restriction.
B. The General Partner shall not, without the prior Consent of the
Common Limited Partners, undertake any of the following actions or enter into
any transaction which would have the effect of such transactions:
(1) except as provided in Sections 7.3.C and 7.3.D, hereof, amend,
modify or terminate this Agreement other than to reflect the
admission, substitution, or withdrawal of partners pursuant to
Articles 11 and 12 hereof;
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(2) make a general assignment for the benefit of creditors or appoint or
acquiesce in the appointment of a custodian, receiver or trustee for
all or any part of the assets of the Partnership;
(3) institute any proceeding for bankruptcy on behalf of the
Partnership;
(4) subject to the rights of Transfer provided in Section 11.2 hereof,
Transfer the Partnership Interest of the General Partner including
through any merger, consolidation or liquidation of the General
Partner, or admit into the Partnership any successor General
Partners;
(5) take title to assets (other than temporarily in connection with an
acquisition prior to contributing such assets to the Partnership)
other than its interest in the Partnership or conduct business other
than through the Partnership, or for the General Partner or the
Partnership to engage in any business other than the ownership,
construction, development and operation of multifamily rental
apartment communities.
C. Notwithstanding Section 7.3.B hereof, the General Partner shall have
the power, without the Consent of any Limited Partners, to amend this Agreement
(including a Designation Instrument) as may be required to facilitate or
implement any of the foregoing purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, or withdrawal of Partners in
accordance with this Agreement, and to amend Exhibit A to the
Agreement in connection with such admission, substitution or
withdrawal;
(3) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material respect,
or to cure any ambiguity, correct or supplement any provision in
this Agreement not inconsistent with law or with other provisions,
or make other changes with respect to matters arising under this
Agreement that will not be inconsistent with law or with the
provisions of this Agreement;
(4) to satisfy any requirements, conditions, or guidelines contained in
any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law;
(5) to reflect such changes as are reasonably necessary for the General
Partner or IAC Capital Trust to maintain status as a REIT;
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(6) to modify the manner in which Capital Accounts are computed but only
to the extent set forth in the definition of "Capital Account"; and
(7) to set forth in a Designation Instrument the rights, powers and
duties of holders of Preferred Limited Partnership Interests issued
pursuant to Section 4.5.F hereof, subject to the rights set forth in
the Designation Instrument of any outstanding series of Preferred
Limited Partner Units.
The General Partner will provide notice to the Limited Partners when any
action under this Section 7.3.C is taken.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement
shall not be amended, and no action may be taken by the General Partner, without
the Consent of each Common Limited Partner adversely affected and each Preferred
Limited Partner materially and adversely affected in each case if such amendment
or action would (i) convert a Limited Partner Interest in the Partnership into a
General Partner Interest (except as a result of the General Partner acquiring
such interest), (ii) modify the limited liability of a Limited Partner, (iii)
alter rights of the Partner to receive distributions pursuant to Article 5,
Article 10 or Section 7.1.A(3) hereof or the allocations specified in Article 6
(except in any such case as permitted pursuant to Section 4.5 and Section
7.3.C(3) or (7)), (iv) alter or modify the right of a Common Limited Partner to
effect an Exchange or Cash Tender pursuant to Section 8.6 hereof or amend or
modify any related definitions, (v) cause the termination of the Partnership
prior to the time set forth in Sections 2.5 or 13.1, (vi) alter or modify
Section 11.3.F or (vii) amend this Section 7.3.D, provided that (1) with respect
to the foregoing clause (iii), the Consent of each Preferred Limited Partner
materially and adversely affected by such amendment or action shall only be
required if the applicable Designation Instrument or Instruments require such
unanimous Consent and, if not so required by such Designation Instrument or
Instruments, then such amendment or action shall only require the approval of
such percentage of Preferred Limited Partner Interests as shall be set forth in
the applicable Designation Instrument or Instruments, (2) only the Consent of
Common Limited Partners shall be required under clauses (iv), (v) and (vi)
above, and (3) with respect to clause (vii) above, the Consent of Preferred
Limited Partners shall be required only if the amendment to this Section 7.3.D
materially and adversely affects the rights, powers and duties of the Preferred
Limited Partner Interests. Further, no amendment may alter the restrictions on
the General Partner's authority set forth in this Section 7.3 without the
appropriate consent.
E. For so long as the Common Limited Partner Interests of all of the
Common Limited Partners of the Partnership equal, in the aggregate, not less
than ten percent (10%) of the aggregate Junior Partnership Interests, the
General Partner shall not, without the prior Consent of the Common Limited
Partners, undertake, on behalf of the Partnership, any of the following actions:
(1) Agree to or consummate any merger, consolidation, reorganization or
other business combination to which the Partnership is a party, in
each case resulting in
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the disposition by the then Common Limited Partners and Assignees of
all outstanding Common Limited Partner Interests and interests of
Assignees therein in consideration for (a) cash, (b) debt
instruments or other evidences of indebtedness, (c) other securities
issued by a corporation, partnership or other entity, other than (i)
the General Partner, (ii) the Partnership or (iii) any entity at
least 80% of the total assets of which (on the basis of market
value) are comprised of assets which, immediately prior to such
transaction, were assets of the Partnership, or (d) any combination
of the consideration described in (a), (b) and/or (c) above.
(2) Sell or otherwise transfer all or substantially all of the assets of
the Partnership.
F. The Partnership, and the General Partner on behalf of the
Partnership, may enter into and perform any and all agreements (including,
without limitation, the Miscellaneous Rights Agreement, the Land Rights
Agreement and the underwriting agreement relating to the Initial Public
Offering) referred to in, contemplated by, or included as an exhibit (or as an
exhibit to an exhibit) to, the General Partner's Registration Statement on Form
S-11 (No. 33-68830) relating to the Initial Public Offering or necessary to
effect the transfer of assets to the Partnership or the assignments and
assumptions of debt or other obligations or liabilities by the Partnership, in
each case without any further act, vote or approval of any Partner
notwithstanding any other provision of this Agreement.
G. Except as provided in Section 7.3.D or in a Designation Instrument
with respect to a series of Preferred Limited Partner Interests and except as
otherwise required by the Act or Delaware law, the Preferred Limited Partners
shall have no right to act, approve, consent or vote on any matter or any action
(or inaction) by the General Partner pursuant to its authority under this
Agreement.
H. The Partnership, and the General Partner on behalf of the
Partnership, may enter into and perform any and all agreements (including,
without limitation, the Declaration of Trust and the underwriting agreement)
referred to in or contemplated by the registration statement on Form S-11 (Nos.
333-39405 and 333-39405-01) of IAC Capital Trust and the Partnership and any
future registration statement filed by IAC Capital Trust with the Securities and
Exchange Commission with respect to the issuance of preferred securities of IAC
Capital Trust, without any further act, vote, consent or approval of any Partner
notwithstanding any other provisions of this Agreement.
Section 7.4. Reimbursement of the General Partner; Reimbursement of
Limited Partners
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it
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may be entitled), the General Partner shall not receive payments from the
Partnership or be compensated for its services as general partner of the
Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its reasonable discretion,
for all of its expenses including, without limitation, (i) expenses relating to
the ownership of interests in and operation of, or for the benefit of, the
Partnership, (ii) compensation of its officers and employees including, without
limitation, payments under the General Partner's Stock Incentive Plans that
provides for stock units, or other phantom stock, pursuant to which employees of
the General Partner will receive payments based upon dividends on or the value
of REIT Shares, (iii) director fees and expenses and (iv) all costs and expenses
of being a public company, including costs of filings with the Securities and
Exchange Commission, reports and other distributions to its stockholders,
provided that, the amount of any reimbursement shall be reduced by any interest
earned by the General Partner with respect to bank accounts or other instruments
or accounts held by it on behalf of the Partnership as permitted pursuant to
Section 7.5 hereof. Such reimbursements shall be in addition to any
reimbursement of the General Partner as a result of indemnification pursuant to
Section 7.7 hereof.
C. Any Limited Partner that incurs an expense attributable to a
property tax or assessment imposed upon a geographic land area, including, but
not limited to, any variable rate assessment, that includes a Contributed
Property may submit a request for reimbursement to the General Partner that
states the total amount of the property tax or assessment imposed upon the area
and an apportionment, in accordance with the requirements of local law, of such
property tax or assessment to the Contributed Property located within the area.
The Limited Partner shall include with such request a copy of a receipt
evidencing payment of the property tax or assessment. The General Partner shall
reimburse the Limited Partner for such amount within five (5) days of receipt of
the request for reimbursement.
D. To the extent not previously paid by the Partnership pursuant to the
Declaration of Trust, the General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine in its
reasonable discretion, for all amounts incurred by it and payable by the
Partnership pursuant to the Declaration of Trust. Such amounts shall include the
amount of any underwriting discounts and commissions and other issuance costs
incurred by the General Partner or IAC Capital Trust, as the case may be, in
connection with the issuance of preferred stock of the General Partner or
preferred securities of IAC Capital Trust, as long as the gross proceeds from
such offering are concurrently contributed to the Partnership in exchange for
Preferred Limited Partner Interests. Such amounts shall be treated as incurred
on behalf of the Partnership and as an expense of the Partnership.
Section 7.5. Outside Activities of the General Partner
The General Partner shall not directly or indirectly enter into or conduct
any business, other than in connection with the ownership, acquisition and
disposition of
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Partnership Interests as General Partner and the management of the business of
the Partnership, and such activities as are incidental thereto. The General
Partner shall not incur any debts other than that for which it may be liable in
its capacity as General Partner of the Partnership. Nothing contained herein
shall be deemed to prohibit the General Partner from executing guarantees of
Partnership debt for which it would otherwise be liable in its capacity as
General Partner. Subject to Section 7.3.B hereof, the General Partner shall not
own any assets or take title to assets (other than temporarily in connection
with an acquisition prior to contributing such assets to the Partnership) other
than its Partnership Interest as a General Partner and other than such cash and
cash equivalents, bank accounts or similar instruments or accounts as it deems
reasonably necessary, taking into account Section 7.1.D hereof and the
requirements necessary to qualify as a REIT to carry out its responsibilities
contemplated under this Agreement and the Certificate of Incorporation.
Notwithstanding the foregoing, if the Consent of the Common Limited Partners is
obtained in accordance with 7.3.B and Article 14 hereof to permit the General
Partner to acquire assets in its own name and to own Property other than through
the Partnership, the General Partner and the Common Limited Partners agree to
negotiate in good faith to amend this Agreement, including, without limitation,
the definition of Conversion Factor, to reflect such activities and the direct
ownership of assets by the General Partner. Except as set forth in the
application Designation Instrument, the General Partner and any Affiliates of
the General Partner may acquire Limited Partner Interests and shall be entitled
to exercise all rights of a Limited Partner relating to such Limited Partner
Interests. Notwithstanding the foregoing, the General Partner may purchase and
own common securities of IAC Capital Trust pursuant to the terms of the
Declaration of Trust, enter into the Declaration of Trust and take all actions
permitted to be taken by it under the Declaration of Trust and such additional
activities as are incidental thereto.
Section 7.6. Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole discretion of the General Partner. The foregoing
authority shall not create any right or benefit in favor of any Subsidiary or
any other Person.
B. Except as provided in Section 7.5 hereof and subject to Section 3.1
hereof, the Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole
discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property to
the Partnership, directly or indirectly, except pursuant to transactions that
are determined by the General Partner in good faith to be fair and reasonable.
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D. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole discretion, believes are advisable.
E. The General Partner on its own behalf and on behalf of the
Partnership may enter into and perform its and the Partnership's obligations
under the Declaration of Trust.
Section 7.7. Indemnification
A. To the fullest extent permitted by applicable law, the Partnership
shall indemnify each Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership ("Actions") as set forth in
this Agreement in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, provided that the Partnership shall not
indemnify an Indemnitee (i) for willful misconduct or a knowing violation of the
law, or (ii) for any transaction for which such Indemnitee received an improper
personal benefit in violation or breach of any provision of this Agreement.
Without limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is hereby
authorized and empowered, on behalf of the Partnership, to enter into one or
more indemnity agreements consistent with the provisions of this Section 7.7 in
favor of any Indemnitee having or potentially having liability for any such
indebtedness. It is the intention of this Section 7.7.A that the Partnership
indemnify each Indemnitee to the fullest extent permitted by law. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by conviction
of an Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of probation against an Indemnitee prior to
judgment, does not create a presumption that such Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.
B. To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the Partnership
as incurred by the
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Indemnitee in advance of the final disposition of the Action upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership as authorized in this Section 7.7.A has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount if it
shall ultimately be determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee unless otherwise provided in a
written agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other Persons
as the General Partner shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with the Partnership's activities, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the Internal Revenue
Service, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary of
such plan, trust or other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.7, unless such
liabilities arise as a result of (i) such Indemnitee's intentional misconduct or
knowing violation of the law, or (ii) any transaction in which such Indemnitee
received a personal benefit in violation or breach of any provision of this
Agreement or applicable law.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any
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provision hereof shall be prospective only and shall not in any way affect the
limitations on the Partnership's liability to any Indemnitee under this Section
7.7 as in effect immediately prior to such amendment, modification or repeal
with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
Section 7.8. Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, neither the General Partner nor any of its officers or directors
shall be liable for monetary damages to the Partnership, any Partners or any
Assignees for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if the General Partner or such officer or
director acted in such cases in good faith.
B. Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its employees or agents (subject to
the supervision and control of the General Partner). The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
C. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's, and its officers' and directors',
liability to the Partnership and the Limited Partners under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
D. Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct or gross negligence, or pursuant to any express indemnities
given to the Partnership by any Partner pursuant to any other written
instrument, no Partner shall have any personal liability whatsoever, to the
Partnership or to the other Partners, for the debts or liabilities of the
Partnership or the Partnership's obligations hereunder, and the full recourse of
the other Partners shall be limited to the interest of that Partner in the
Partnership. Without limitation of the foregoing, and except for fraud, willful
misconduct or gross negligence, or pursuant to any such express indemnity, no
property or assets of any Partner, other than its interest in the Partnership,
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of any judgment (or other judicial process) in favor of any other
Partner(s) and arising out of, or in connection with, this Agreement. This
Agreement is executed by the officers of the General Partner solely as officers
of the same and not in their own individual capacities.
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E. To the extent that, at law or in equity, a Limited Partner has
duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or the Partners, the Limited Partner shall not be liable to the
Partnership or to any other Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of a Limited Partner otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of such Limited Partner.
F. Whenever in this Agreement a Limited Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion" or
under a grant of similar authority or latitude, the Limited Partner shall be
entitled to consider only such interests and factors as it desires, including
its own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Partnership or the
other Partners or (ii) in its "good faith" or under another express standard,
the Limited Partner shall act under such express standard and shall not be
subject to any other or different standards imposed by this Agreement or any
other agreement contemplated herein or by relevant provisions of law or in
equity or otherwise.
G. Whenever in this Agreement the General Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion" or
under a grant of similar authority or latitude, the General Partner shall be
required to make such decision in good faith after taking into consideration the
interests of the Partners or (ii) in its "good faith" or under another express
standard, the General Partner shall act under such express standard and shall
not be subject to any other or different standards imposed by this Agreement or
any other agreement contemplated herein or by relevant provisions of law or in
equity or otherwise.
Section 7.9. Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any duly appointed attorney or
attorneys-in-fact. Each such attorney shall, to the extent provided by the
General Partner in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the General Partner hereunder.
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D. Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner or IAC
Capital Trust to continue to qualify as a REIT or (ii) to avoid the General
Partner or IAC Capital Trust incurring any taxes under Section 857 or Section
4981 of the Code, is expressly authorized under this Agreement and is deemed
approved by all of the Limited Partners.
Section 7.10. Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership or one or
more nominees, as the General Partner may determine. The General Partner hereby
declares and warrants that any Partnership assets for which legal title is held
in the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.11. Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without the consent or approval of any
other Partner or Person, to encumber, sell or otherwise use in any manner any
and all assets of the Partnership and to enter into any contracts on behalf of
the Partnership, and take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and
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empowered to do so for and on behalf of the Partnership and (iii) such
certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1. Limitation of Liability
The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.4 hereof, or under
the Act.
Section 8.2. Management of Business
No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, partner, agent or trustee of the
General Partner, the Partnership or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such,
shall not affect, impair or eliminate the limitations on the liability of the
Limited Partners or Assignees under this Agreement.
Section 8.3. Outside Activities of Limited Partners
Subject to any agreements entered into pursuant to Section 7.6.D hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the General Partner, the Partnership or a Subsidiary, any Limited Partner
and any officer, director, employee, agent, trustee, Affiliate or shareholder of
any Limited Partner shall be entitled to and may have business interests and
engage in business activities in addition to those relating to the Partnership,
including business interests and activities that are in direct competition with
the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person (other than the
General Partner to the extent expressly provided herein) and such Person shall
have no obligation pursuant to this Agreement, subject to Section 7.6.D hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the General Partner, the Partnership or a Subsidiary, to offer any interest
in any such
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business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4. Return of Capital
Except as provided in a Designation Instrument, no Limited Partner shall
be entitled to the withdrawal or return of its Capital Contribution, except to
the extent of distributions made pursuant to this Agreement or upon termination
of the Partnership as provided herein. Except to the extent provided in Article
6 hereof or otherwise expressly provided in this Agreement (including pursuant
to a Designation Instrument), no Limited Partner or Assignee shall have priority
over any other Limited Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Preferred Limited
Partner Units of a series shall be redeemed only in accordance with a
Designation Instrument relating thereto.
Section 8.5. Rights of Limited Partners Relating to the Partnership
A. In addition to other rights provided by this Agreement or by the
Act, each Limited Partner shall have the right, for a purpose reasonably related
to such Limited Partner's interest as a Limited Partner in the Partnership, upon
written demand:
(1) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the
General Partner pursuant to the Securities Exchange Act of 1934, as
amended;
(2) to obtain a copy of the Partnership's federal, state and
local income tax returns for each Partnership Year and the tax work
papers prepared in connection with such returns;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner; and
(4) to obtain a copy of this Agreement and the Certificate
and all amendments thereto, together with executed copies of all
powers of attorney pursuant to which this Agreement, the Certificate
and all amendments thereto have been executed.
B. The Partnership shall notify any Common Limited Partner, on request,
of the then current Conversion Factor or any change made to the Conversion
Factor.
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Section 8.6. Exchange and Cash Tender Rights
A. Each Original Limited Partner shall have the right (subject to the
terms and conditions set forth herein) to require the General Partner to acquire
all or a portion of the Common Limited Partner Units held by such Original
Limited Partner, including Common Limited Partner Units acquired by any Original
Limited Partner subsequent to the initial contribution, (such Common Limited
Partner Units being hereafter "Tendered Units") in exchange for, at the election
of such Original Limited Partner, (i) REIT Shares, in which event such required
acquisition shall be considered an "Exchange," or (ii) cash, in which event such
required acquisition shall be considered a "Cash Tender." Any Exchange or Cash
Tender shall be exercised pursuant to a Notice of Exchange or Notice of Cash
Tender, as the case may be, delivered to the General Partner by the Original
Limited Partner who is exercising the relevant right (the "Tendering Partner").
B. A Tendering Partner who wishes to effect an Exchange shall receive,
on the Specified Exchange Date, the REIT Shares Amount with respect to the
Tendered Units, subject to the Ownership Limit set forth in ARTICLE SIXTH of the
Certificate of Incorporation and to Section 8.6.G(2) hereof, provided such
Tendering Partner submits such information, certification and affidavits as the
General Partner requires pursuant to Section 8.6.I hereof in connection with the
application of the Ownership Limit. The REIT Shares Amount receivable after
giving effect to the provisions of Section 8.6.F shall be delivered as duly
authorized, validly issued, fully paid and nonassessable REIT Shares and, if
applicable, rights (as defined in the definition of REIT Shares Amount), free of
any pledge, lien, encumbrance or restriction, other than those provided in the
Certificate of Incorporation, the Bylaws of the General Partner, the Securities
Act and relevant state securities or blue sky laws. Notwithstanding any delay in
such delivery, the Tendering Partner shall be deemed the owner of such REIT
Shares and rights for all purposes, including without limitation, rights to
vote, consent, receive dividends, and to exercise rights, as of the Specified
Exchange Date.
C. (1) A Tendering Partner effecting a Cash Tender shall have the
right to receive in cash on the Specified Cash Tender Date the Cash Tender
Amount, subject to Section 8.6.G(3) hereof. The General Partner shall purchase
the Tendered Units solely with the proceeds of a registered public offering (a
"Public Offering Funding") of a number of REIT Shares ("Registrable Shares")
equal to the REIT Shares Amount with respect to the Tendered Units.
(2) Promptly upon receipt of a Notice of Cash Tender, the General
Partner shall give notice (a "Single Funding Notice") to all Original Limited
Partners then holding a Common Limited Partner Interest and require that all
such Original Limited Partners elect whether or not to effect a Cash Tender of
their Common Limited Partner Units to be funded through such Public Offering
Funding. In the event any such Original Limited Partner elects to effect such a
Cash Tender, it shall give notice thereof and of the number of Common Limited
Partner Units to be made subject thereto in writing to the General Partner
within 10 Business Days after receipt of the Single Funding Notice, and such
Original Limited Partner shall be
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treated as a Tendering Partner for all purposes of this Section 8.6. In the
event that an Original Limited Partner does not so elect, it shall be deemed to
have waived its right to effect a Cash Tender for the current Twelve-Month
Period, except that any such Original Limited Partner holding more than
1,000,000 Common Limited Partner Units shall continue to be permitted to effect
a Cash Tender pursuant to this Section 8.6.C during such Twelve-Month Period;
provided that the General Partner shall not be required to acquire Common
Limited Partner Units pursuant to this Section 8.6.C more than twice within a
Twelve-Month Period.
D. The General Partner shall purchase the Tendered Units on the
Specified Cash Tender Date for the Cash Tender Amount in immediately available
funds. Any proceeds from a Public Offering Funding that are in excess of the
Cash Amount shall be for the sole benefit of the General Partner. The General
Partner shall make a Capital Contribution of such amounts to the Partnership for
an additional General Partner Interest. Any such contribution shall not be
subject to the participation rights provided under Section 4.5.G but shall
entitle the General Partner to a Junior Percentage Interest adjustment pursuant
to Section 4.5.H hereof.
E. The following additional terms and conditions shall apply to any
Public Offering Funding:
(1) The General Partner shall use its best efforts to effect
as promptly as possible a registration, qualification or compliance
(including, without limitation, the execution of an undertaking to
file post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as would
permit or facilitate the sale and distribution of the REIT Shares;
provided, the General Partner shall not by reason hereof, be
required to submit to jurisdiction or taxation, or qualify to do
business in any jurisdiction in which such submission or
qualification would not be otherwise required; provided, further, if
the General Partner shall deliver a certificate to the Tendering
Partner stating that the General Partner has determined in the good
faith judgment of its Board of Directors that such filing,
registration or qualification would require disclosure of material
non-public information, the disclosure of which would have a
material adverse effect on the General Partner, then the General
Partner may delay making any filing or delay the effectiveness of
any registration or qualification for the shorter of (a) the period
ending on the date upon which such information is disclosed to the
public or ceases to be material or (b) an aggregate period of 90
days in connection with any Public Offering Funding.
(2) The General Partner shall advise the Tendering Partner,
regularly and promptly upon any request, of the status of the
registration, including the timing of all filings, the selection of
and understandings with underwriters, dealers and brokers, the
nature and contents of all communications
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with the Securities and Exchange Commission and other governmental
bodies, the nature of marketing activities, and any other matters
reasonably related to the timing, price and underwriting discounts
and commissions relating to the Public Offering Funding and the
compliance by the General Partner with its obligations with respect
thereto. In addition, the General Partner and each Tendering Partner
may, but shall be under no obligation to, enter into understandings
in writing ("Pricing Agreements") whereby the Tendering Partner will
agree in advance as to the minimum Public Offering Funding Amount
per Registrable Share at or below the Cash Amount at which such
Tendering Partner will agree in advance not to become a Withdrawing
Partner under Section 8.6.E(3) below. Furthermore, the General
Partner shall establish pricing notification procedures with each
Tendering Partner, such that the Tendering Partner will have the
maximum opportunity practicable to determine whether to become a
Withdrawing Partner pursuant to Section 8.6.E(3) below.
(3) Upon agreement between the General Partner and the
managing underwriter(s) engaged by the General Partner in order to
sell the Registrable Shares of the price per share at which the
Registrable Shares are to be offered to the public and the
underwriting discounts and commissions with respect thereto (the
"Pricing Information"), the General Partner shall immediately use
its best efforts to notify the Tendering Partner of the Pricing
Information. Each Tendering Partner shall have one hour (or such
additional time as may be extended by the General Partner in its
sole discretion) to elect to withdraw his Cash Tender (a Tendering
Partner making such an election being a "Withdrawing Partner"), and
Common Limited Partner Units with a REIT Shares Amount equal to such
excluded Registrable Shares shall be considered to be withdrawn from
the related Cash Tender. If a Tendering Partner, within such period,
does not notify the General Partner of such Tendering Partner's
election not to become a Withdrawing Partner, then such Tendering
Partner shall, except as otherwise provided in a Pricing Agreement,
be deemed to have elected to become a Withdrawing Partner, without
liability to the General Partner. To the extent that the General
Partner is unable to notify any Tendering Partner, such unnotified
Tendering Partner shall, except as otherwise provided in any Pricing
Agreement, be deemed to have elected to become a Withdrawing
Partner. Each Tendering Partner who does not become a Withdrawing
Partner shall have the right, subject to the approval of the
managing underwriter(s) in its sole discretion, to Cash Tender
additional Common Limited Partner Units in a number no greater than
the number of Common Limited Partner Units withdrawn. If more than
one Tendering Partner so elects to tender additional Common Limited
Partner Units, then such additional Common Limited Partner Units
shall be tendered on a pro rata basis, based on the number of
additional Common Limited Partner Units sought to be so Cash
Tendered. In the event that Original Limited Partners withdraw in
accordance with this paragraph such that the Public Offering Funding
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is canceled, then each Withdrawing Partner shall bear its pro rata
share of the expenses, if any, reasonably incurred in connection
with the unconsummated Public Offering Funding including, legal and
accounting fees and expenses, Securities and Exchange Commission
registration fees, state blue sky and securities law fees and
expenses, printing expenses, NASD filing fees and listing fees (such
share calculated as if such Partner had not been a Withdrawing
Partner). If the Public Offering Funding is consummated, then the
Withdrawing Partner will not be subject to such expenses.
(4) The General Partner shall take all reasonable action in
order to effectuate the sale of the Registrable Shares including,
but not limited to, the entering into of an underwriting agreement
in customary form with the book-running managing underwriter
selected for such underwriting by the Tendering Partner or, if there
is more than one Tendering Partner, by the Tendering Partner who,
together with the Affiliates of such Tendering Partner, beneficially
owns the greatest number of Common Limited Partner Units then being
made subject to a Cash Tender; provided that such managing
underwriter shall be reasonably acceptable to the General Partner.
The General Partner may select any additional investment banks and
managers to be used in connection with the offering; provided that
such additional investment bankers and managers must be reasonably
satisfactory to the Tendering Partners who, together with the
Affiliates of such Tendering Partner, beneficially own the majority
of Common Limited Partner Units being Tendered. Notwithstanding any
other provision of this Agreement, if the managing underwriter(s)
advises the General Partner in writing that marketing factors
require a limitation of the number of shares to be underwritten,
then the General Partner shall so advise all Tendering Partners and
the number of Common Limited Partner Units to be sold to the General
Partner pursuant to the Cash Tender shall be allocated among all
Tendering Partners in proportion, as nearly as practicable, to the
respective number of Common Limited Partner Units as to which each
Tendering Partner elected to effect a Cash Tender. No Registrable
Shares excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such
registration.
(5) If the managing underwriter has not limited the number
of Registrable Shares to be underwritten, then the General Partner
may include in any registration filed pursuant to Section 8.6.C
hereof securities (i) for its own account, subject to Section 4.5.G
hereof, and (ii) for the account of others, in either case, only if
and to the extent that (x) the managing underwriter, the General
Partner and Tendering Partners owning Common Limited Partner Units
representing at least seventy-five percent (75%) of the Common
Limited Partner Units with respect to which the Public Offering
Funding is being effected so agree in writing, and (y) the right of
any party to Cash Tender Common Limited Partner Units pursuant to
this Section 8.6, and the Cash Tender Amount to be received by
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such party (including by virtue of the number of Registrable Shares
which would otherwise have been included in such registration and
underwriting, the offering price for such Registrable Shares and the
underwriting commissions or discounts for such Registrable Shares)
will not thereby be limited, reduced or adversely affected. In the
event that the managing underwriter determines that the size of the
registration should be reduced, securities included by the General
Partner shall be reduced or eliminated from the registration prior
to reducing securities included by any other Person in the
registration.
F. Notwithstanding the provisions of Section 8.6.A hereof, a Common
Limited Partner shall not be entitled to effect an Exchange to the extent that
the ownership or right to acquire REIT Shares by such Partner on the date of the
Notice of Exchange, or any date thereafter, through and including the Specified
Exchange Date, would be prohibited under the Certificate of Incorporation.
G. Notwithstanding anything herein to the contrary, with respect to any
Exchange or Cash Tender pursuant to this Section 8.6:
(1) All Common Limited Partner Units acquired by the General
Partner pursuant thereto shall automatically, and without further
action required, be converted into and deemed to be General Partner
Interests comprised of the same number of General Partner Units.
(2) Subject to the Ownership Limit, no Original Limited
Partner may effect an Exchange (a) for less than 10,000 Common
Limited Partner Units or, if such Limited Partner holds less than
10,000 Common Limited Partner Units, all of the Common Limited
Partner Units held by such Limited Partner; or (b) for more than
one-third of the number of Common Limited Partner Units held by such
Limited Partner; provided that, if the Original Limited Partners own
collectively 6,149,000 Common Limited Partner Units or less, such
Original Limited Partners may Exchange all their Common Limited
Partner Units subject to the Ownership Limit;
(3) No Original Limited Partner may effect a Cash Tender (a)
for less than 100,000 Common Limited Partner Units or, if such
Limited Partner holds less than 100,000 Common Limited Partner
Units, all of the Common Limited Partner Units held by such Partner,
or (b) for more than one-third of the number of Common Limited
Partner Units; provided that, if the Original Limited Partners own
6,149,000 Common Limited Partner Units or less, such Original
Limited Partners may effect a Cash Tender for all their Common
Limited Partner Units;
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(4) Each Original Limited Partner (a) may effect an Exchange
only once in each Twelve-Month Period, and (b) may not effect an
Exchange or Cash Tender during the period after the Partnership
Record Date with respect to a distribution and before the record
date established by the General Partner for a distribution to its
stockholders of some or all of its portion of such distribution.
(5) Notwithstanding anything herein to the contrary, with
respect to any Cash Tender, in the event the General Partner gives
notice to all Original Limited Partners then owning Common Limited
Partner Interests (a "Primary Offering Notice") that it desires to
effect a primary offering of its equity securities then, unless the
General Partner otherwise consents, commencement of the actions
denoted in Section 8.6.E hereof as to a Public Offering Funding with
respect to any Notice of Cash Tender thereafter received (a
"Subsequent Cash Tender Notice") may be delayed until the earlier of
(a) the completion of the primary offering or (b) 90 days following
the giving of the Primary Offering Notice; provided to the extent
that the managing underwriter(s) of such primary offering advise
that the inclusion of such additional REIT Shares will not adversely
affect the offering, additional REIT Shares the proceeds of which
are to be used to satisfy a Cash Tender made subject to such a
Subsequent Cash Tender Notice (a "Subsequent Cash Tender") (without
regard to the limitations of subparagraph (3)(a) of this paragraph
G) shall be included in such offering, and the procedures of this
Section 8.6 shall otherwise be followed as closely as practicable;
provided, further, unless the entire REIT Shares Amount relating to
the Common Limited Partner Units made subject to the Subsequent Cash
Tender shall be sold in such offering, such Subsequent Cash Tender
shall not count as a Cash Tender for purposes of this Section 8.6;
provided, further, a Primary Offering Notice may be given no more
than once in any Twelve-Month Period without the Consent of the
Common Limited Partners.
(6) No Common Limited Partner may effect a Cash Tender
within 90 days following the closing of any prior Public Offering
Funding;
(7) The consummation of such an Exchange or Cash Tender
shall be subject to the expiration or termination of the applicable
waiting period, if any, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(8) Each Tendering Partner shall continue to own all Common
Limited Partner Units subject to any Exchange or Cash Tender, and be
treated as a Common Limited Partner with respect to such Common
Limited Partner Units for all purposes of this Agreement, until such
Common Limited Partner Units are transferred to the General Partner
and paid for on the Specified Exchange Date, or Specified Cash
Tender Date, as the case may be. Until a Specified Exchange
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Date, the Tendering Partner shall have no rights as a stockholder of
the General Partner with respect to the REIT Shares to be received
in such Exchange.
(9) For purposes of determining compliance with the
restrictions set forth in this Section 8.6.G, all Common Limited
Partner Units beneficially owned by a Related Party of an Original
Limited Partner shall be considered to be owned or held by such
Limited Partner.
H. The General Partner agrees to cause the REIT Shares issuable upon an
Exchange pursuant to this Section 8.6 to be listed on the New York Stock
Exchange prior to or concurrently with the issuance of such REIT Shares by the
General Partner. REIT Shares issued upon an Exchange pursuant to this Section
8.6 may contain such legends regarding compliance with the Securities Act and
applicable state securities laws as the General Partner in good faith determines
to be necessary in order to comply with applicable law.
I. In connection with an exercise of Exchange Rights pursuant to this
Section 8.6, each Tendering Partner shall submit the following, in addition to
the Notice of Exchange:
(1) An affidavit, dated the same date as the Notice of Exchange,
disclosing the ownership by (a) such Partner of REIT Shares and (b)
any Person whose ownership of REIT Shares would be attributed to
such Partner under Code Section 544 and a representation in writing
that neither such Partner nor any Person from whom ownership of REIT
Shares could be attributed to it under Code Section 544 has any
intention as of such date of acquiring additional REIT Shares
between the date of the Notice of Exchange and the Specified
Exchange Date.
(2) If the Tendering Partner is a Related Party, the affidavit described
in (1) above shall disclose the direct and constructive ownership
pursuant to Section 544 of the Code of REIT Shares of all such
Related Parties and shall provide the representation described in
(1) with respect to such Partner and Related Partners.
(3) On the Specified Exchange Date, the Tendering Partner shall certify
the (i) the direct and constructive ownership of REIT Shares by such
Partner remains unchanged from the affidavit described above in (1)
or (2) or (ii) if such ownership has changed, the Tendering Partner
will not and will not be deemed to own REIT Shares of the General
Partner in violation of the Ownership Limit.
J. The provisions of this Section 8.6 insofar as they relate to an
Exchange (but not a Cash Tender) shall be applicable to the Common Limited
Partner Units owned by TRC and any TRC Shareholder to whom Common Limited
Partner Units have been Transferred as provided in Section 11.3, or to whom
Common Limited Partner Units have been issued, and TRC and such TRC Shareholder
shall have the right to effect an Exchange subject to and in accordance with
this Section 8.6, provided that:
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(1) until such time as TRC or such TRC Shareholder holds less than
10,000 Common Limited Partner Units, not more than one-third (1/3)
of the aggregate number of Common Limited Partner Units that have
been issued to TRC and the TRC Shareholders may be Exchanged during
any Twelve-Month Period;
(2) none of such Common Limited Partner Units may be Exchanged prior to
a date which is the earlier to occur of (i) February 4, 2000 or (ii)
the date on which a notice of completion is filed by the Partnership
in the official records of Santa Clara County pursuant to California
Civil Code Section 3093 covering all improvements included in the
Tandem Project;
(3) TRC or such TRC Shareholder may not effect an Exchange of less than
10,000 Common Limited Partner Units or, if TRC or such TRC
Shareholder holds less than 10,000 Common Limited Partner Units, all
of the Limited Partner Units held by TRC or such TRC Shareholder;
and
(4) in the event TRC or a TRC Shareholder wishes to Exchange Common
Limited Partner Units for REIT Shares, having complied with this
Section 8.6, the General Partner (for its own account or for the
account of its nominee) shall have the right, but not the
obligation, to purchase all or a portion of such Common Limited
Partner Units for cash at a price equal to the number of Common
Limited Partner Units to be purchased pursuant to this Section 8.6.J
multiplied by the average of the Unit Values for the ten (10)
trading days immediately preceding the date of purchase by the
General Partner (or its nominee) of such Common Limited Partner
Units. The General Partner shall exercise such right, if at all,
within thirty (30) days of the date on which the General Partner
receives a Notice of Exchange from TRC or a TRC Shareholder as to
its desire to Exchange such Common Limited Partner Units for REIT
Shares. In the event the General Partner purchases Common Limited
Partner Units pursuant to this Section 8.6.J, the Partnership will
be deemed to have issued to the General Partner a number of General
Partner Units equal to the number of Limited Partner Units so
purchased, the Limited Partner Units so purchased shall be canceled
and the Junior Percentage Interests of the General Partner and all
Common Limited Partners shall be adjusted based on the foregoing.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1. Records and Accounting
The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books
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and records deemed by the General Partner to be appropriate with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Sections 8.5 or 9.2 hereof. The
books of the Partnership shall be maintained, for financial and tax reporting
purposes, on an accrual basis in accordance with generally accepted accounting
principles, or on such other basis as the General Partner determines to be
necessary or appropriate.
Section 9.2. Reports
A. As soon as practicable, but in no event later than ninety (90) days
after the close of the last fiscal quarter of each Partnership Year, the General
Partner shall cause to be mailed to each Limited Partner, an annual report
containing financial statements of the Partnership for the Partnership Year, or
of the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for the twelve month period ending December 31,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than forty five (45)
days after the close of each fiscal quarter (except the last fiscal quarter of
each year), the General Partner shall cause to be mailed to each Limited Partner
as of the last day of the calendar quarter, a report containing unaudited
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
and such other information as may be required by applicable law or regulation or
as the General Partner determines to be appropriate. At the request of any
Limited Partner, the General Partner agrees to provide access to the books,
records and work papers upon which the reports in this Section 9.2. are based.
ARTICLE 10
TAX MATTERS
Section 10.1. Preparation of Tax Returns; Tax Accounting
The General Partner shall arrange for the preparation and timely filing of
all returns with respect to Partnership income, gains, deductions, losses and
other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, on or before January
15 of each year (for so long as the Partnership Year is the fiscal year ending
December 31) the tax information, in draft or final form, reasonably required by
Limited Partners for federal and state income tax reporting purposes and
thereafter within fifteen
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(15) days of the end of the Partnership Year. In the event that the General
Partner delivers such information in draft form, the General Partner shall use
its best efforts to ascertain that any information that would be used by any
Partner for information reporting purposes is accurate and complete. At the
request of any Limited Partner, the General Partner agrees to provide access to
the books, records and work papers upon which the reports in this Section 10.1.
are based and to provide access to financial and income tax data necessary for
the Limited Partners to determine quarterly estimated income tax payments
required to be paid by the Limited Partners.
Section 10.2. Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole discretion, determine whether to make any available election pursuant to
the Code. The General Partner shall make the election under Section 754 of the
Code in accordance with applicable Regulations thereunder. The General Partner
shall elect, and shall file such returns and amended returns, as necessary, in a
manner consistent with the use of the recurring item method of accounting
provided under Section 461(h) of the Code with respect to property taxes imposed
on the Property of the Partnership, including causing the applicable property
taxes to be paid prior to the date provided under Section 461(h) for purposes of
economic performance. The General Partner shall have the right to seek to revoke
any such election (excluding the elections under Sections 461(h) and 754 of the
Code) upon the General Partner's determination in its sole discretion that such
revocation is in the best interests of the Partners.
Section 10.3. Tax Matters Partner
The General Partner shall be the "tax matters partner" of the Partnership
for federal income tax purposes. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership in addition to
any reimbursement pursuant to Section 7.4 hereof. Nothing herein shall be
construed to restrict the Partnership from engaging an accounting firm to assist
the tax matters partner in discharging its duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable. At the
request of any Limited Partner, the General Partner agrees to consult with such
Limited Partner with respect to the preparation and filing of any returns,
including, without limitation any subsequent audit or litigation with respect to
such return, provided the filing of such returns shall be in the sole discretion
of the General Partner, provided, however, that the Original Limited Partners
shall have the right, at their own expense, to contest any adjustment and
approve any settlement in connection with an item that was allocated to them
pursuant to Section 6.2.A.
Section 10.4. Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from or
pay on behalf of or with respect to such Limited Partner any amount of federal,
state, local, or foreign taxes that
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the General Partner determines that the Partnership is required to withhold or
pay with respect to any amount distributable or allocable to such Limited
Partner pursuant to this Agreement, including without limitation any taxes
required to be withheld or paid by the Partnership pursuant to Section 1441,
1442, 1445 or 1446 of the Code. Any amount paid on behalf of or with respect to
a Limited Partner shall constitute a loan by the Partnership to such Limited
Partner, which loan shall be repaid by such Limited Partner within fifteen (15)
days after notice from the General Partner that such payment must be made unless
(i) the Partnership withholds such payment from a distribution which would
otherwise be made to the Limited Partner or (ii) the General Partner determines
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner pursuant to Article 5 hereof.
ARTICLE 11
TRANSFERS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER
Section 11.1. Transfer
A. The term "Transfer," when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person. The term "Transfer" when used
in this Article 11 does not include any Exchange of Common Limited Partner Units
by an Original Limited Partner, TRC or a TRC Shareholder for REIT Shares of the
General Partner or acquisition of Common Limited Partner Units from a Common
Limited Partner by the General Partner pursuant to Section 8.6 or Section
11.3.F.
B. No Partnership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any Transfer or purported Transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
Section 11.2. Transfer of General Partner's Interest
A. The General Partner may not Transfer any of its General Partner
Interest or withdraw as General Partner except as provided in Sections 11.2.B
and 11.2.C hereof.
B. The General Partner shall not withdraw from the Partnership and
shall not Transfer, pledge, encumber or otherwise dispose of all or any portion
of its interest in the Partnership (whether by sale, disposition, statutory
merger or consolidation, liquidation or
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otherwise) without the Consent of the Common Limited Partners. Upon any Transfer
of such a Partnership Interest pursuant to the Consent of the Common Limited
Partners and otherwise in accordance with the provisions of this Section 11.2.B,
the transferee shall become a successor General Partner for all purposes herein,
and shall be vested with the powers and rights of the transferor General
Partner, and shall be liable for all obligations and responsible for all duties
of the General Partner, once such transferee has executed such instruments as
may be necessary to effectuate such admission and to confirm the agreement of
such transferee to be bound by all the terms and provisions of this Agreement
with respect to the Partnership Interest so acquired. It is a condition to any
such Transfer that the transferee assumes, by operation of law or express
agreement, all of the obligations of the transferor General Partner under this
Agreement with respect to such transferred Partnership Interest, and no such
Transfer (other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor General Partner are assumed by a
successor corporation by operation of law) shall relieve the transferor General
Partner of its obligations under this Agreement without the Consent of the
Common Limited Partners.
C. Subject to the consent requirement in Section 7.3 hereof, the
General Partner may merge with another entity if immediately after such merger
substantially all of the assets of the surviving entity, other than the General
Partner Units held by the General Partner are contributed to the Partnership as
a Capital Contribution in exchange for the General Partner Units.
Section 11.3. Limited Partners' Rights to Transfer
A. A Limited Partner shall have the right to transfer all or any
portion of its Partnership Interest to any Person, subject to the provisions of
Section 11.6 hereof and, in the case of Preferred Limited Partner Interests
owned by IAC Capital Trust, 11.3.E hereof; provided that, any Transfer of a
Partnership Interest shall be made only to a Qualified Transferee.
Notwithstanding the foregoing provisions of this Section 11.3, any Original
Limited Partner may, at any time, without the consent of the General Partner,
(i) Transfer all or any portion of its Partnership Interest to an Affiliate or
to an Irvine Person, subject to the provisions of Section 11.6 hereof, (ii)
transfer all or a portion of its Partnership Interest pursuant to its rights to
effect an Exchange or a Cash Tender as provided in Section 8.6 hereof and (iii)
Pledge any portion of its Partnership Interest. It is a condition to any
Transfer otherwise permitted hereunder that the transferee assumes by operation
of law or express agreement all of the obligations of the transferor Limited
Partner under this Agreement with respect to such transferred Partnership
Interest and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor Limited
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor Limited Partner of its obligations under this Agreement
without the approval of the General Partner, in its sole discretion.
Notwithstanding the foregoing, any transferee of any transferred Partnership
Interest shall be subject to any and all ownership limitations contained in the
Certificate of Incorporation which may limit or restrict such transferee's
ability to exercise its Exchange Rights. Any transferee shall take subject to
the obligations of the transferor hereunder, but such transferee shall not be
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liable for the obligations of the transferor under Section 17-607 of the Act.
Any transferee that is an Original Limited Partner shall be permitted to
exercise the rights to effect an Exchange or a Cash Tender as provided in
Section 8.6 hereof. Unless a transferee is an Original Limited Partner, TRC or a
TRC Shareholder, such transferee shall not be entitled to exercise the rights
provided under Section 8.6 hereof in the absence of consent by the General
Partner. Until admitted as a Substituted Limited Partner, no transferee, whether
by a voluntary transfer, by operation of law or otherwise, shall have any rights
hereunder, other than the rights of an Assignee as provided in Section 11.5
hereof.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservatory or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners of the same class or
series, for the purpose of settling or managing the estate, and such power as
the Incapacitated Limited Partner possessed to transfer all or any part of his
or its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. In connection with any Transfer, the General Partner shall have the
right to receive an opinion of counsel reasonably satisfactory to it to the
effect that the proposed Transfer may be effected without registration under the
Securities Act and will not otherwise violate any federal or state securities
laws or regulations applicable to the Partnership or the Partnership Interests
transferred. If, in the opinion of such counsel, such Transfer would require the
filing of a registration statement under the Securities Act or would otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units, the General Partner may prohibit any
Transfer otherwise permitted under this Section 11.3 by a Limited Partner of
Partnership Interests.
D. No Transfer by a Limited Partner of its Partnership Interests
(including any Exchange or Cash Tender, any other acquisition of Partnership
Units by the General Partner or any acquisition of Partnership Units by the
Partnership) may be made to any person if (i) in the opinion of legal counsel
for the Partnership, it would result in the Partnership being treated as an
association taxable as a corporation, or (ii) such Transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code.
E. In addition to the restrictions on Transfer set forth in this
Section 11.3 and in Section 11.6 and notwithstanding anything to the contrary
contained in this Agreement, no Preferred Limited Partner Interest of any series
owned by IAC Capital Trust may be Transferred except in accordance with the
Designation Instrument creating such series.
F. In addition to the restrictions on Transfer set forth in the
foregoing provisions of this Section 11.3 and in Section 11.6, a Transfer of all
or any portion of the Partnership Interest of TRC shall be subject to the
following additional provisions:
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(1) None of such Partnership Interest may be Transferred
except (i) to any one, or any combination of, William W. Thompson,
Bruce Dorfman or Robert Hughes (individually, a "TRC Shareholder",
and collectively, the "TRC Shareholders"), provided that it shall be
a condition precedent to any such Transfer and the admission of the
TRC Shareholder as a Substituted Limited Partner that such TRC
Shareholder agree in writing to be bound by the restrictions on
Transfer set forth in this Agreement or (ii) to the General Partner
(or its nominee) as contemplated by this Section 11.3.F.
(2) In the event all or any portion of such Partnership
Interest is Transferred to a TRC Shareholder and a TRC Shareholder
Incapacity occurs with respect to such TRC Shareholder, TRC shall
within thirty (30) days notify the General Partner of such TRC
Shareholder Incapacity and the General Partner shall have the right,
but not the obligation, to purchase (for its own account or for the
account of its nominee) the Partnership Interest of such TRC
Shareholder for cash at a price equal to the number of Common
Limited Partner Units representing the Partnership Interest of such
TRC Shareholder multiplied by the average of the Unit Values for the
ten (10) trading days immediately preceding the date of purchase by
the General Partner (or its nominee) of such Partnership Interest.
The General Partner shall exercise such right, if at all, within
thirty (30) days of the date on which the General Partner receives
written notice of such TRC Shareholder Incapacity. If the General
Partner fails to exercise such right, such Common Limited Partner
Units must, within 90 days of such TRC Shareholder Incapacity, and,
in all events, prior to any Transfer to the heirs or devisees of
such TRC Shareholder or to any other Person, be Exchanged for REIT
Shares in accordance with Section 8.6, in which event the conditions
to an Exchange set forth in the proviso in Section 8.6.J shall not
apply to the right to Exchange such Common Limited Partner Units for
REIT Shares.
(3) In the event of the death of, or total physical
disability of, a TRC Shareholder, entry by a court of competent
jurisdiction adjudicating such TRC Shareholder incompetent to manage
his person or his estate, or an Act of Bankruptcy with respect to
such TRC Shareholder ("TRC Shareholder Incapacity"), TRC shall
within thirty (30) days notify the General Partner of such TRC
Shareholder Incapacity, and if such TRC Shareholder Incapacity
relates to a TRC Shareholder other than William W. Thompson, and if
at the time of such TRC Shareholder Incapacity TRC is a Partner,
then:
(i) TRC shall have the right, but not the obligation
to satisfy the General Partner, in its sole discretion and
within thirty (30) days of the occurrence of such TRC
Shareholder Incapacity, that such TRC Shareholder Incapacity
will not result, at any time, in any portion of TRC's
Partnership Interest being Transferred, directly or
indirectly, to the
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TRC Shareholder with respect to whom such TRC Shareholder
Incapacity occurred.
(ii) In the event TRC fails to so satisfy the General
Partner, the General Partner shall have the right, but not the
obligation, to purchase (for its own account or for the
account of its nominee) a portion of TRC's Partnership
Interest for cash at a price equal to the number of the Common
Limited Partner Units which the General Partner is entitled to
purchase pursuant to this Section 11.3.F(3)(ii) multiplied by
the average of the Unit Values for the ten (10) trading days
immediately preceding the date of such purchase by the General
Partner (or its nominee). The number of Common Limited Partner
Units which the General Partner shall be entitled to purchase
pursuant to this Section 11.3.F(3)(ii) shall be equal to the
total number of Common Limited Partner Units then owned by
TRC, multiplied by a fraction, the denominator of which shall
be the total number of TRC Shares outstanding as of the time
of such TRC Shareholder Incapacity and the numerator of which
shall be the total number of TRC Shares owned by the TRC
Shareholder at the time of such TRC Shareholder Incapacity.
The General Partner shall exercise such right, if at all,
within thirty (30) days of the date on which the General
Partner receives written notice of such TRC Shareholder
Incapacity.
(iii) If TRC fails to so satisfy the General Partner and
the General Partner fails to exercise its right of purchase as
set forth in clause (ii) above, Common Limited Partner Units
in the amount which the General Partner was entitled to
purchase pursuant to clause (ii) must, within 90 days of time
of such TRC Shareholder Incapacity, be Exchanged for REIT
Shares, in which event the conditions to an Exchange set forth
in the proviso in Section 8.6.J shall not apply to the right
to Exchange such Common Limited Partner Units for REIT Shares.
(iv) From and after the date on which the General
Partner purchases such Common Limited Partner Units pursuant
to clause (ii) or such Common Limited Partner Units are
Exchanged for REIT Shares pursuant to clause (iii), TRC shall
take such steps as may be necessary, as determined by the
General Partner in its sole discretion, to ensure that any
Common Limited Partner Units still owned by TRC shall not, at
any time, without the prior written consent of the General
Partner, be Transferred to the estate, heirs or devisees of
the TRC Shareholder who is then subject to a TRC Shareholder
Incapacity or to any other Person.
(4) In the event of a TRC Shareholder Incapacity with
respect to William W. Thompson, if at the time of such TRC
Shareholder Incapacity, TRC
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is a Partner, TRC shall within thirty (30) days notify the General
Partner of such TRC Shareholder Incapacity and the General Partner
shall have the right, but not the obligation, to purchase (for its
own account or for the account of its nominee) all or any portion of
TRC's Partnership Interest for cash at a price equal to the number
of Common Limited Partner Units representing such TRC Partnership
Interest multiplied by the average of the Unit Values for the ten
(10) trading days immediately preceding the date of purchase by the
General Partner (or its nominee) of such Partnership Interest. The
General Partner shall exercise such right, if at all, within thirty
(30) days of the date on which the General Partner receives written
notice of such TRC Shareholder Incapacity. If the General Partner
fails to exercise such right, such Common Limited Partner Units
must, within 90 days of such TRC Shareholder Incapacity, be
Exchanged for REIT Shares, in which event the conditions to an
Exchange set forth in the proviso in Section 8.6.J shall not apply
to the right to Exchange such Common Limited Partner Units for REIT
Shares.
(5) In the event of an Act of Bankruptcy with respect to
TRC, the General Partner shall have the right, but not the
obligation, to purchase (for its own account or for the account of
its nominee) all or any portion of TRC's Partnership Interest for
cash at a price equal to the number of Common Limited Partner Units
representing such TRC Partnership Interest multiplied by the average
of the Unit Values for the ten (10) trading days immediately
preceding the date of purchase by the General Partner (or its
nominee) of such Partnership Interest. The General Partner shall
exercise such right, if at all, within thirty (30) days of the date
on which the General Partner receives written notice of such Act of
Bankruptcy. If the General Partner fails to exercise such right,
such Common Limited Partner Units must, within a reasonable period
of time of such Act of Bankruptcy, be Exchanged for REIT Shares, in
which event the conditions to an Exchange set forth in the proviso
in Section 8.6.J shall not apply to the right to Exchange such
Common Limited Partner Units for REIT Shares.
(6) In the event the General Partner purchases Common
Limited Partner Units pursuant to clauses (2), (3), (4) or (5) of
this Section 11.3.F, the Partnership will be deemed to have issued
to the General Partner a number of General Partner Units equal to
the number of Common Limited Partner Units so purchased, the Common
Limited Partner Units so purchased shall be canceled and the Junior
Percentage Interest of the General Partner and all Common Limited
Partners shall be adjusted based on the foregoing.
G. In addition to the restrictions on Transfer set forth in the
foregoing provisions of this Section 11.3 and in Section 11.6, a Transfer of all
or any portion of the Partnership Interest of a TRC Shareholder shall be subject
to the following additional provision:
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(1) None of such Partnership Interest may be Transferred by
such TRC Shareholder, except (i) to another TRC Shareholder in
compliance with all applicable laws and regulations and the terms
and conditions of this Agreement, (ii) a Transfer by operation of
law as a result of a TRC Shareholder Incapacity, in which event the
provisions of Section 11.3.F(2) shall apply and (iii) to the General
Partner or its nominee as contemplated by Section 11.3.F.
Section 11.4. Substituted Limited Partners
A. Each Limited Partner shall, pursuant to the provisions of 11.3, have
the right to Transfer all or a portion of its Partnership Interest to any
Person, subject in the case of Preferred Limited Partner Interests owned by IAC
Capital Trust to Section 11.3.E. Upon satisfaction of the conditions provided
under Section 3.4 and Section 11.3 and upon furnishing to the General Partner
(i) evidence of acceptance in form satisfactory to the General Partner of all of
the terms and conditions of this Agreement, including, without limitation, the
power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature
page to this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as a Substituted Limited Partner, the General
Partner shall promptly admit such transferee of the interest of a Limited
Partner as a Substituted Limited Partner.
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of Limited
Partner Units, and Percentage Interest of such Substituted Limited Partner and
to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5. Assignees
Until such time as a transferee has been admitted as a Substituted Limited
Partner pursuant to Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive, distributions from the
Partnership and the share of Net Income, Net Losses, and any other items of
income, gain, loss, deduction and credit of the Partnership attributable to the
Limited Partner Units assigned to such transferee, but shall not be deemed to be
a holder of Limited Partner Units for any other purpose under this Agreement,
and shall not be entitled to vote such Limited Partner Units in any matter
presented to the Limited Partners of the same class or series for a vote (such
Limited Partner Units being deemed to have been voted on such matter in the same
proportion as all other Limited Partner Units held by Limited Partners of the
same class or series are voted). In the event any such transferee desires to
make a further assignment
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of any such Partnership Units, such transferee shall be subject to all the
provisions of this Article 11 to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of Limited Partner Units.
Section 11.6. General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer of all of such Limited Partner's Limited Partner
Units in accordance with this Article 11 or pursuant to an Exchange or a Cash
Tender of all of its Common Limited Partner Units under Section 8.6 hereof.
B. Any Limited Partner who shall Transfer all of his Limited Partner
Units in a transfer permitted pursuant to this Article 11 shall cease to be a
Limited Partner upon the admission of all Assignees of such Limited Partner
Units as Substituted Limited Partners. Similarly, (i) any Common Limited Partner
who shall transfer all of its Common Limited Partner Units pursuant to an
Exchange or Cash Tender of all of its Common Limited Partner Units under Section
8.6 hereof shall cease to be a Common Limited Partner and (ii) any Preferred
Limited Partner whose Preferred Limited Partner Units of a series are redeemed
in full or paid in full upon the stated maturity thereof, in each case, in
accordance with the Designation Instrument applicable to such series of
Partnership Units shall cease to be a Preferred Limited Partner insofar as such
series is concerned.
C. If any Partnership Unit is Transferred during any quarterly segment
of the Partnership Year in compliance with the provisions of this Article 11, or
Exchanged or Cash Tendered pursuant to Section 8.6 hereof on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items attributable to such Partnership Unit for such
Partnership Year shall be allocated to the transferor Partner or the Tendering
Partner, as the case may be, and to the transferee Partner by taking into
account their varying interests during the Partnership Year in accordance with
Section 706(d) of the Code, using the interim closing of the books method.
Solely for purposes of making such allocations, each of such items for the
calendar month in which a transfer occurs shall be allocated to the transferee
Partner and none of such items for the calendar month in which a transfer or an
Exchange or Cash Tender occurs shall be allocated to the transferor Partner or
the Tendering Partner, as the case may be, if such transfer or Exchange or Cash
Tender occurs before the fifteenth day of the month, otherwise such items shall
be allocated to the transferor. All distributions of Available Cash attributable
to such Partnership Unit with respect to which the Partnership Record Date is
before the date of such transfer, assignment, Exchange or Cash Tender shall be
made to the transferor Partner or the Tendering Partner, as the case may be, and
all distributions of Available Cash thereafter attributable to such Partnership
Unit shall be made to the transferee Partner.
D. In addition to any other restriction on transfer herein contained,
in no event may any transfer or assignment of a Partnership Interest by any
Partner (including any Exchange or
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Cash Tender or any other acquisition of Partnership Units by the General
Partner) be made (i) to any person or entity who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) in violation of applicable law;
(iii) of any component portion of a Partnership Interest, such as the Capital
Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest, (iv) in the event such transfer would
cause the General Partner to cease to comply with the requirements for REIT
status under the Code, (v) if such transfer would, in the opinion of counsel to
the Partnership, cause the Partnership to cease to be classified as a
partnership for Federal income tax purposes (except as a result of the Exchange
or Cash Tender of all Common Limited Partner Units held by all Common Limited
Partners); (vi) if such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title I of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (vii) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.2-101; (viii) if such
transfer requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws other than in connection with the
issuance of preferred securities of IAC Capital Trust; (ix) if such transfer
requires the Partnership to become a reporting company under the Securities
Exchange Act of 1934; or (x) if such transfer subjects the Partnership to be
regulated under the Investment Company Act of 1940, the Investment Advisors Act
of 1940 or the Employee Retirement Income Security Act of 1974, each as amended.
Section 11.7. Removal of General Partner
A. The General Partner may not be removed as general partner except as
provided in this Section 11.7. The General Partner may be removed upon the
affirmative vote of Common Limited Partners holding 50% or more of the issued
and outstanding Common Limited Partner Interests if such removal is for cause.
As used in this Section 11.7, "cause" means an act or omission undertaken with
deliberate intent to cause injury to the Partnership, constituting actual fraud,
actual bad faith or willful misconduct on the part of the General Partner or an
act or omission of gross negligence. The right to remove the General Partner
shall not exist or be exercised unless such action for removal also provides for
the election of a new general partner. Such removal shall be effective
immediately subsequent to the admission of the successor General Partner
pursuant to Article 12 hereof.
B. Upon the removal of the General Partner, the departing General
Partner shall become a Common Limited Partner, and its General Partner Interest
shall be converted automatically into a Common Limited Partner Interest, without
any reduction in the departing General Partner's Junior Percentage Interest
(subject to proportionate dilution by reason of the admission of its successor).
This Agreement shall be amended to reflect any event described in this
Section 11.7, and any successor General Partner covenants so to amend this
Agreement and the Certificate, as required.
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C. The successor to the departing General Partner shall at the
effective date of its admission to the Partnership contribute to the capital of
the Partnership cash in an amount such that its Capital Account, after giving
effect to such contribution, shall be at least equal to the amount, if any,
required by any applicable law.
D. The removal of the General Partner pursuant to this Section 11.7
will not relieve the Partnership from any of its debts or other obligations to
the departing General Partner, including, without limitation, reimbursement
obligations under Section 7.4 or its obligations under Section 7.7, arising
prior to the removal of the departing General Partner.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1. Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section
11.2.B hereof who is proposed to be admitted as a successor General Partner
shall be admitted to the Partnership as the General Partner, effective
immediately prior to such Transfer. A successor to a General Partner removed
pursuant to Section 11.7 shall be admitted to the Partnership as the successor
General Partner effective upon satisfaction of the condition specified in
Section 11.7.C. Any such successor shall carry on the business of the
Partnership without dissolution. In each case, the admission shall be subject to
the successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2. Admission of Additional Limited Partners
A. A Person who makes a Capital Contribution to the Partnership on or
after the date hereof in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner by the General Partner, without the
consent of any other Partner, only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to
this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole discretion. The admission of any
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Person as an Additional Limited Partner shall become effective on the date upon
which the name of such Person is recorded on the books and records of the
Partnership, following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of any Additional Limited Partner occurs shall be
allocated among all the Partners and Assignees including such Additional Limited
Partner, in accordance with the principles described in Section 11.6.C. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.
Section 12.3. Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.
Section 12.4. Limit on Number of Partners
No Person shall be admitted to the Partnership as an additional Partner if
the effect of such admission would be to cause the Partnership to have more than
500 Partners, including as Partners for this purpose those Persons indirectly
owning an interest in the Partnership through another partnership, subchapter S
corporation or a grantor trust, or otherwise cause the Partnership to become a
reporting company under the Securities Exchange Act of 1934, as amended.
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ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1. Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal or removal of the General Partner, any successor General Partner
shall continue the business of the Partnership without dissolution. The
Partnership shall dissolve, and its affairs shall be wound up, upon the first to
occur of any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5
hereof;
B. an event of withdrawal of the General Partner, as
defined in the Act, unless, within ninety (90) days after the event
of withdrawal (i) all the Common Limited Partners agree in writing
to continue the business of the Partnership and to the appointment,
effective as of the date of such event of withdrawal, of a successor
General Partner; and (ii) more than fifty percent (50%) of the
aggregate Liquidation Preference Amount of all series of Preferred
Limited Partner Units then outstanding voting together as a single
class agree to continue the business of the Partnership either in
writing or by vote at a meeting of Preferred Limited Partners held
in accordance with Section 14.3 and to the appointment, effective as
of the date of such event of withdrawal, of a successor General
Partner;
C. an election to dissolve the Partnership made by the
General Partner, subject to the Consent of the Common Limited
Partners;
D. entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
or
E. the sale of all or substantially all of the assets and
properties of the Partnership.
Section 13.2. Winding Up
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is
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<PAGE> 87
inconsistent with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner or, in the event there
is no remaining General Partner, any Person elected by the Common Limited
Partners holding in the aggregate more than fifty percent (50%) of the
Percentage Interests of the Common Limited Partners or, in the event there is no
remaining General Partner or Common Limited Partner, any Person elected by the
Preferred Limited Partners holding in the aggregate more than fifty percent
(50%) of the Percentage Interests of the Preferred Limited Partners voting as
one class (the General Partner or such other Person being referred to herein as
the "Liquidator") shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the General Partner) shall be applied and distributed
in the following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners (whether by payment
or the making of reasonable provision for payment thereof);
(2) Second, to the satisfaction of all of the Partnership's debts and
liabilities to the General Partner (whether by payment or the making
of reasonable provision for payment thereof);
(3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners (whether by payment or the making
of reasonable provision for payment thereof);
(4) Fourth, to the Preferred Limited Partners, the applicable
Liquidation Preference Amount plus accrued and unpaid distributions
in accordance with the terms of the applicable Designation
Instrument(s); and
(5) The balance, if any, to the General Partner and Common Limited
Partners in accordance with their Capital Accounts, after giving
effect to all contributions, distributions, and allocations for all
periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13 other than reimbursement of its
expenses as provided in Section 7.4 hereof.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole discretion, defer for a reasonable
time the liquidation of any assets
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<PAGE> 88
except those necessary to satisfy liabilities of the Partnership (including to
those Partners as creditors) and/or distribute to the Partners, in lieu of cash,
as tenants in common and in accordance with the provisions of Section 13.2.A
hereof, undivided interests in such Partnership assets as the Liquidator deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good faith judgment of the Liquidator, such distributions in kind are
in the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
C. If any Partner has a deficit balance in his Capital Account (after
giving effect to all contributions, distributions and allocations for all
taxable years, including the year during which such liquidation occurs), such
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. A pro rata portion of the distributions that would otherwise be made
to the General Partner and Limited Partners pursuant to this Article 13 may be
withheld or escrowed to provide a reasonable reserve for Partnership liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Partnership, provided that such withheld or
escrowed amounts shall be distributed to the General Partner and Limited
Partners in the manner and order of priority set forth in Section 13.2.A as soon
as practicable.
Section 13.3. [Intentionally omitted]
Section 13.4. Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of his Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement (including pursuant to any Designation Instrument or Instruments), no
Limited Partner shall have priority over any other Partner as to the return of
his Capital Contributions, distributions, or allocations.
Section 13.5. Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would, but
for an election or objection by one or more Partners pursuant to Section 13.1,
result in a dissolution of the Partnership, the General Partner shall within
thirty (30) days thereafter, provide written notice thereof to each of the
Partners.
83
<PAGE> 89
Section 13.6. Termination of Partnership and Cancellation of Certificate
of Limited Partnership
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions other than
the State of Delaware shall be canceled and such other actions as may be
necessary to terminate the Partnership shall be taken.
Section 13.7. Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.8. Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1. Amendments
Subject to Section 14.3, Amendments to this Agreement may be proposed by
the General Partner or by a Majority-In-Interest of the Common Limited Partners.
Following such proposal, the General Partner shall submit any proposed amendment
to the Common Limited Partners. The General Partner shall seek the written vote
of the Common Limited Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that it may deem appropriate.
For purposes of obtaining a written vote, the General Partner may require a
response within a reasonable specified time, but not less than fifteen (15)
days, and failure to respond in such time period shall constitute a vote which
is consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 7.3.B, 7.3.C or 7.3.D hereof, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the Consent of Common Limited
Partners.
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<PAGE> 90
Section 14.2. Meetings of the Common Limited Partners
A. Meetings of the Common Limited Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by a Majority-In-Interest of the Common Limited Partners. The call shall
state the nature of the business to be transacted. Notice of any such meeting
shall be given to all Common Limited Partners not less than seven (7) days nor
more than thirty (30) days prior to the date of such meeting. Common Limited
Partners may vote in person or by proxy at such meeting. Whenever the vote or
Consent of Common Limited Partners is permitted or required under this
Agreement, such vote or Consent may be given at a meeting of Common Limited
Partners or may be given in accordance with the procedure prescribed in Section
14.2.B hereof.
B. Any action required or permitted to be taken at a meeting of the
Common Limited Partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by a majority of the Percentage
Interests of the Common Limited Partners (or such other percentage as is
expressly required by this Agreement). Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Common Limited Partners (or such
other percentage as is expressly required by this Agreement). Such consent shall
be filed with the General Partner. An action so taken shall be deemed to have
been taken at a meeting held on the effective date so certified.
C. Each Common Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Common Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Common Limited
Partner or his attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the proxy
(or there is receipt of a proxy authorizing a later date). Unless otherwise
provided therein, every proxy shall be revocable at the pleasure of the Common
Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Common
Limited Partner executing such proxy.
D. Each meeting of Common Limited Partners shall be conducted by the
General Partner or such other Person as the General Partner may appoint pursuant
to such rules for the conduct of the meeting as the General Partner or such
other Person deems appropriate in his sole discretion. Without limitation,
meetings of Common Limited Partners may be conducted in the same manner as
meetings of the shareholders of the General Partner and may be held at the same
time, and as part of, meetings of the shareholders of the General Partner.
Section 14.3. Meetings of Preferred Limited Partners
In the event that the vote or consent of the holders of Preferred Limited
Partner Interests (or any series thereof) is required pursuant to this Agreement
(including pursuant to a Designation Instrument) such vote or consent may be
obtained at a meeting of Preferred Limited
85
<PAGE> 91
Partners or by written consent. The provisions of Section 14.2 hereof shall
apply to any such meeting or written consent to the extent practicable in which
case all references in such Section to Common Limited Partners shall mean the
Preferred Limited Partners as a class or the Preferred Limited Partners holding
the applicable series of Preferred Limited Partner Interests, as shall be
applicable to such vote or consent.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1. Addresses and Notice
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A or such other address of which
the Partner shall notify the General Partner in writing.
Section 15.2. Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" or
"Sections" are to Articles and Sections of this Agreement.
Section 15.3. Pronouns and Plurals
Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
Section 15.4. Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5. Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
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<PAGE> 92
Section 15.6. Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.7. Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.8. Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.9. Entire Agreement
This Agreement contains all of the understandings and agreements between
the Partners with respect to the subject matter of this Agreement and the
rights, interests and obligations of the Partners with respect to the
Partnership.
Section 15.10. Invalidity of Provisions
If any provision of this Agreement is or becomes invalid or unenforceable
in any respect, the validity and enforceability of the remaining provisions
contained herein shall not be affected thereby.
Section 15.11. Outstanding Limited Partner Interests
The Partners agree that all certificates representing Limited Partner
Interests issued pursuant to the Prior Agreement and outstanding as of the date
of this Agreement constitute certificates representing Common Limited Partner
Interests under this Agreement.
Section 15.12.Certificates for Preferred Limited Partner Interests Issued
to IAC Capital Trust
Unless otherwise permitted pursuant to the terms of the Declaration of
Trust, legal title to all Preferred Limited Partner Units issued to IAC Capital
Trust shall be vested in, the Preferred Limited Partner Units shall be held of
record in the name of, and the certificate
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<PAGE> 93
or certificates representing such Preferred Limited Partner Units shall be
registered in the name of, the Property Trustee.
[SIGNATURE PAGES TO FOLLOW]
88
<PAGE> 94
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the date and year first above
written.
GENERAL PARTNER:
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
COMMON LIMITED PARTNERS:
THE IRVINE COMPANY
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
89
<PAGE> 95
R.S.J. ASSOCIATES,
a California limited partnership
By: The Irvine Company, its
general partner
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
WOODBRIDGE WILLOWS ASSOCIATES,
a California limited partnership
By: The Irvine Company, its
general partner
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
90
<PAGE> 96
TIC INVESTMENT COMPANY A,
a California general partnership
By: The Irvine Company,
a general partner
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
TIC INVESTMENT COMPANY B,
a California general partnership
By: The Irvine Company
a general partner
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
91
<PAGE> 97
TIC INVESTMENT COMPANY C,
a California general partnership
By: The Irvine Company,
a general partner
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
TIC INVESTMENT COMPANY D,
a California general partnership
By: The Irvine Company,
a general partner,
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
92
<PAGE> 98
THOMPSON RESIDENTIAL COMPANY, INC.,
a California corporation
By:__________________________________
Name:
Title:
STONECREST VILLAGE COMPANY, LLC,
a California limited liability company
By: California Pacific Homes,
a California corporation,
its Managing Member
By:__________________________________
Name:
Title:
PREFERRED LIMITED PARTNERS:
IAC CAPITAL TRUST,
a Delaware business trust
By:_________________________________
James E. Mead, not in his individual
capacity but solely in his capacity
as a trustee of IAC Capital Trust
93
<PAGE> 99
AMENDMENT NO. 26
TO
EXHIBIT A
PARTNERS, CONTRIBUTIONS AND
PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Gross Asset Number
Value of of
Cash Contributed Total Partnership Percentage
Name and Address of Partner Contribution(1) Property (1) Property Units (2) Interest(11)
- --------------------------- ------------ ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
GENERAL PARTNER
IRVINE APARTMENT $345,600,033.58(3) 0 $345,600,033.58(3) 19,901,134 44.4025864%
COMMUNITIES, INC.
550 Newport Center Drive
Newport Beach, CA 92660
COMMON LIMITED PARTNERS
THE IRVINE COMPANY 0 883,022,698(4) 883,022,698(4) 17,303,000(4) 38.6057374%
550 Newport Center Drive
Newport Beach, CA 92660
R.S.J. ASSOCIATES 0 27,286,000 27,286,000 535,000 1.1936699%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
WOODBRIDGE WILLOWS ASSOCIATES 0 9,989,000 9,989,000 609,000 1.3587756%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY B 0 17,075,000 17,075,000 478,162(5) 1.0668553%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
Gross Asset Number
Value of of
Cash Contributed Total Partnership Percentage
Name and Address of Partner Contribution(1) Property (1) Property Units (2) Interest(11)
- --------------------------- --------------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
TIC INVESTMENT COMPANY A 24,500,126.25(6) 0 24,500,126.25(6) 1,502,105(6) 3.3514345%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY C 67,426,907.33(7) 0 67,426,907.33(7) 2,925,799 6.5279216%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY D 0 33,974,000 33,974,000 1,185,333(8) 2.6446659%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
THOMPSON RESIDENTIAL COMPANY, INC.
591 Redwood Highway, Suite 5275
Mill Valley, CA 94941 0 2,000,000(9) 2,000,000.00(9) 74,523(9) 0.1662726%
STONECREST VILLAGE COMPANY, LLC
c/o California Pacific Homes
One Civic Plaza, Suite 275
Newport Beach, CA 92660 0 9,475,000 9,475,000 305,707 (10) 0.6820808%
-----------------------------------------------------------------------------------------
Subtotal $437,527,067.16 $982,821,698 $1,420,348,765.16 44,819,763 100.0000000%
PREFERRED LIMITED PARTNERS
IAC CAPITAL TRUST(12)
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive
Newport Beach, CA 92660 $150,000,000.00 0 $150,000,000.00 6,000,000 Series A
Preferred Limited
Partner Units 100%
=========================================================================================
TOTAL $587,527,067.16 $982,821,698 $1,570,348,765.16 NA NA
</TABLE>
A-2
<PAGE> 101
(1) These amounts constitute the agreed value for purposes of the Act.
(2) Except with respect to the Common Limited Partner Units referred to in
Notes 5, 6 and 8, the 51,345;1,756 and 232,333 General Partner Units
referred to in Note 3, and the 40,905 Common Limited Partner Units
referred to in Note 7, Common Limited Partner Units were allocated in
accordance with the net asset value of the property contributed by each
Partner.
(3) Of which $193,602,600 was contributed in connection with the December 1993
initial public offering of 11,800,000 REIT Shares, $84,378,375 was
contributed in connection with the August 1995 offering of 5,175,000 REIT
Shares, $30,000,337.50 was contributed in connection with the July 1996
offering of 1,490,700 REIT Shares, $29,969,000 was contributed in
connection with the February 1997 offering of 1,150,000 REIT Shares,
$6,170,093.9375 was deemed contributed pursuant to Sections 4.6.B and
4.5.H for 232,333 REIT Shares, $1,428,415.2675 was deemed contributed
pursuant to Section 4.8.A(3) for 51,345 REIT Shares and $51,211.875 was
deemed contributed pursuant to Section 4.8.B(2) for 1,756 REIT Shares.
(4) Includes $65,898,000 gross asset value of property contributed by five
original limited partners which limited partners were liquidated on June
30, 1995. The 1,359,000 Common Limited Partner Units owned by such limited
partners were transferred to The Irvine Company in connection with such
liquidation. Also includes $37,605,000 gross asset value of property
contributed by another original limited partner. The 160,000 Common
Limited Partner Units owned by such limited partner were transferred to
The Irvine Company in June 1996.
(5) These Common Limited Partner Units were issued in accordance with Section
4.3.B prior to June 1, 1996 and were transferred to TIC Investment Company
B in June 1996 when it was admitted as a Substituted Limited Partner.
(6) Of which $24,457,500 was contributed pursuant to Section 4.5.G and 4.5.H
for 1,500,000 Common Limited Partner Units in connection with the August
1995 offering of REIT Shares and $42,626.25 was deemed contributed
pursuant to Section 4.8.A.(4) for 2,105 Common Limited Partner Units. All
such Units were issued prior to June 1, 1996 and were transferred to TIC
Investment Company A in June 1996 when it was admitted as a Substituted
Limited Partner.
(7) Of which $30,000,337.50 and $36,332,695.64 was contributed pursuant to
Sections 4.5.G and 4.5.H for 1,490,700 Common Limited Partner Units and
1,394,194 the Common Limited Partner Units, respectively, in connection
with the July 1996 and February 1997 offerings, respectively, of REIT
Shares and $1,093,874.1925 was deemed contributed pursuant to Section
4.8.A(4) for 40,905 Common Limited Partner Units.
(8) These Common Limited Partner Units were issued in accordance with Section
4.3.B. TIC Investment Company D was admitted as an Additional Limited
Partner in July 1996. With respect to three of the transactions
(representing 824,932 of the Common Limited Partner Units and $24,430,000
of the Gross Asset Value of Contributed Property) a portion of the Common
Limited Partner Units issued in each transaction are subject to return and
cancellation if the Apartment Community Project to be constructed on the
land site does not achieve a 10% unleveraged return on costs for the first
year following stabilized occupancy.
(9) TRC was admitted as an Additional Limited Partner in February 1997 in
connection with the closing under the TRC Contribution Agreement.
Additional Common Limited Partner Units may be issued to TRC in connection
with its contribution pursuant to the TRC Contribution Agreement, in which
event the amount under "Gross Asset Value of Contributed Property" will be
increased as provided in Section 4.1 by the amount of the Contingent
Contribution Value (as defined in such TRC Contribution Agreement).
(10) SVC was admitted as an Additional Common Limited Partner in December, 1997
in connection with the closing under the Contribution Agreement dated
November 25, 1997 between SVC and the Partnership.
(11) Represents (i) in the case of the General Partner and a Common Limited
Partner, their Junior Percentage Interest and (ii) in the case of a
Preferred Limited Partner, its Percentage Interest in such series.
(12) IAC Capital Trust was admitted as a Preferred Limited Partner on January
20, 1998.
A-3
<PAGE> 102
EXHIBIT B
NOTICE OF EXCHANGE
The undersigned Common Limited Partner hereby irrevocably (i) exchanges
____ Common Limited Partner Units in Irvine Apartment Communities, L.P. in
accordance with the terms of the Second Amended and Restated Agreement of
Limited Partnership of Irvine Apartment Communities, L.P., as amended (the
"Agreement"), and the Exchange referred to therein, (ii) surrenders such Common
Limited Partner Units and all right, title and interest therein, and (iii)
directs that the REIT Shares deliverable upon exercise of the Exchange be
registered or placed in the name(s) and at the address(es) specified below,
subject to Section 8.6 of the Agreement. The undersigned hereby represents,
warrants, certifies and agrees (a) that the undersigned has good, marketable and
unencumbered title to such Common Limited Partner Units, free and clear of the
rights or interests of any other person or entity, (b) that the undersigned has
the full right, power and authority to exchange and surrender such Common
Limited Partner Units as provided herein, (c) that the undersigned has obtained
the consent or approval of all persons or entities, if any, having the right to
consent to or approve such exchange and surrender, (d) that the undersigned is
acquiring such REIT Shares for his own account, for investment and without a
view to engaging in any resale or distribution thereof, except such as may occur
pursuant to the registration statement which may be filed by the General Partner
pursuant to a Miscellaneous Rights Agreement to which the undersigned and the
General Partner are parties, (e) that the REIT Shares may not be transferred by
the undersigned except in transactions pursuant to a registration statement
under the Securities Act or that are exempt from the registration requirements
of the Securities Act and all applicable state and foreign securities laws and
(f) that the General Partner may refuse to transfer such REIT Shares as to which
evidence satisfactory to it of such registration or exemptions is not provided
to it.
All capitalized terms used herein and not otherwise defined shall have the
same meaning ascribed to them respectively in the Agreement.
Dated: ____________
Name of Common Limited Partner.
-----------------------------------------
(Signature of Common Limited Partner)
-----------------------------------------
(Street Address)
B-1
<PAGE> 103
-----------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
-----------------------------------------
issue REIT Shares to:
Please insert social security or other tax identification number:
Name:
B-2
<PAGE> 104
EXHIBIT C
NOTICE OF CASH TENDER
The undersigned Common Limited Partner hereby irrevocably (i) tenders to
the General Partner ______ Common Limited Partner Units in Irvine Apartment
Communities, L.P. in accordance with the terms of the Second Amended and
Restated Agreement of Limited Partnership of Irvine Apartment Communities, L.P.,
as amended, and the Cash Tender Right referred to therein, (ii) surrenders such
Common Limited Partner Units and all right, title and interest therein, and
(iii) directs that the Cash Tender Amount deliverable upon exercise of the Cash
Tender Right be delivered to the address specified below. The undersigned hereby
represents, warrants, certifies and agrees (a) that the undersigned has good,
marketable and unencumbered title to such Common Limited Partner Units, free and
clear of the rights or interests of any other person or entity, (b) that the
undersigned has the full right, power and authority to tender and surrender such
Common Limited Partner Units as provided herein, and (c) that the undersigned
has obtained the consent or approval of all persons or entitles, if any, having
the right to consent to or approve such tender and surrender.
All capitalized terms used herein and not otherwise defined shall have the
same meaning ascribed to them respectively in the Agreement.
Dated: ____________
Name of Common Limited Partner.
-----------------------------------------
(Signature of Common Limited Partner)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
-----------------------------------------
Please insert social security or other tax identification number:
Name:
C-1
<PAGE> 105
EXHIBIT D
FORM OF COMMON LIMITED PARTNER UNIT CERTIFICATE
THE COMMON LIMITED PARTNER INTERESTS EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN
COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF IRVINE APARTMENT COMMUNITIES, L.P.
DATED JANUARY 20, 1998, AS AMENDED (THE "PARTNERSHIP AGREEMENT") A COPY OF WHICH
MAY BE OBTAINED FROM IRVINE APARTMENT COMMUNITIES, INC., GENERAL PARTNER, AT ITS
PRINCIPAL EXECUTIVE OFFICE.
Number of Common
Certificate Number Limited Partner Units
- --------- --------
IRVINE APARTMENT COMMUNITIES, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that _____________________________________
is the owner of _________________________________________
FULLY PAID COMMON LIMITED PARTNER UNITS OF
IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
properly endorsed. This Certificate and the Common Limited Partner Units
represented hereby are issued and shall be held subject to all of the provisions
of the Partnership Agreement as the same may be amended and/or supplemented from
time to time.
IN WITNESS WHEREOF, Irvine Apartment Communities, Inc., general partner,
has signed this Certificate this __ day of __, 199_.
D-1
<PAGE> 106
IRVINE APARTMENT COMMUNITIES, INC.
as general partner of
Irvine Apartment Communities, LP.
By: ___________________________________
Name:
Title:
D-2
<PAGE> 1
EXHIBIT 3.6
EXHIBIT E
IRVINE APARTMENT COMMUNITIES, L.P.
DESIGNATION INSTRUMENT
PURSUANT TO
THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF IRVINE APARTMENT COMMUNITIES, L.P.
DESIGNATION OF THE VOTING POWERS,
DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF THE
SERIES A PREFERRED LIMITED PARTNER UNITS
FIRST: Pursuant to authority expressly vested in the General Partner of
the Partnership pursuant to Section 4.5.F of the Agreement, the General Partner
hereby classifies 6,900,000 Preferred Limited Partner Units of the Partnership
into a series designated the Series A Preferred Limited Partner Units and
provides for the issuance of such Preferred Limited Partner Units. This
instrument constitutes a Designation Instrument under the Agreement. Capitalized
terms used but not defined herein have the meanings set forth in the Agreement.
SECOND: The terms of the Series A Preferred Limited Partner Units
established by this Designation Instrument are as follows:
SECTION 1. Designation and Amount. The series of Preferred Limited Partner
Units shall be designated the "Series A Preferred Limited Partner Units" and the
authorized number of Partnership Units constituting such series shall be
6,900,000.
SECTION 2. Stated Value. The stated value of the Series A Preferred
Limited Partner Units shall be $25.00 per Unit (the "STATED VALUE").
SECTION 3. Distributions. (a) Subject to the rights of holders of any
series of Preferred Limited Partner Units which the Partnership may issue in the
future which rank on a parity with the Series A Preferred Limited Partner Units
in respect of distributions, the holders of outstanding Series A Preferred
Limited Partner Units will be entitled to receive, when, as and if declared by
the
<PAGE> 2
Partnership acting through the General Partner out of funds legally available
for the payment of distributions, cumulative preferential cash distributions at
the rate per annum of 8'% of the Stated Value. Distributions will be cumulative,
will accrue from January 20, 1998, the original issue date of the Series A
Preferred Limited Partner Units, and will be payable quarterly in arrears on
March 31, June 30, September 30 and December 31 (each a "SERIES A DISTRIBUTION
PAYMENT DATE") of each year, commencing on March 31, 1998. The amount of
distributions payable for any period will be computed on the basis of a 360- day
year of twelve 30-day months and for any period shorter than a full quarterly
period for which distributions are computed, the amount of the distribution
payable will be computed on the basis of the actual number of days elapsed in
such a 30-day month. If any Series A Distribution Payment Date is not a Business
Day, then payment of the distribution to be made on such Series A Distribution
Payment Date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except that
if such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such Series A Distribution Payment Date. Each
such distribution will be payable to the holders of record of the Series A
Preferred Limited Partner Units as they appear on the books of the Partnership
or any transfer agent for the Series A Preferred Limited Partner Units on such
record dates selected by the General Partner, not less than 10 nor more than 50
days preceding the applicable Series A Distribution Payment Date; provided that
so long as the Series A Preferred Limited Partner Units are owned by IAC Capital
Trust, the General Partner shall establish record dates with respect to the
Series A Preferred Limited Partner Units that shall coincide with the record
dates established with respect to the 8'% Series A REIT Trust Originated
Preferred Securities of IAC Capital Trust (the "SERIES A PREFERRED SECURITIES").
(b) Distributions on the Series A Preferred Limited Partner Units shall
accrue on a daily basis commencing on the date of original issuance of the
Series A Preferred Limited Partner Units, will accrue whether or not the
Partnership has earnings, whether or not there are funds legally available for
the payment of such distributions and whether or not such distributions are
declared. Accrued distributions will accumulate, to the extent not paid, as of
the Series A Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.
(c) So long as any Series A Preferred Limited Partner Units are
outstanding, no distribution shall be paid or declared on or with respect to the
Common Limited Partner Units or the General Partner Units or any other series of
outstanding Preferred Limited Partner Units ranking junior as to the payment of
distributions to the Series A Preferred Limited Partner Units, nor shall any sum
or
2
<PAGE> 3
sums be set aside for or applied to the purchase or redemption of the Series A
Preferred Limited Partner Units or any other series of outstanding Preferred
Limited Partner Units or the purchase, redemption or other acquisition for value
of any Common Limited Partner Units, General Partner Units or Preferred Limited
Partner Units of any series ranking junior to the Series A Preferred Limited
Partner Units as to the payment of distributions unless, in each case, full
cumulative distributions accumulated on all Series A Preferred Limited Partner
Units and all other series of outstanding Preferred Limited Partner Units
ranking on a parity with the Series A Preferred Limited Partner Units as to the
payment of distributions have been paid in full, provided that the foregoing
will not prohibit distributions payable solely in Common Limited Partner Units,
the General Partner Units or Preferred Limited Partner Units of a series ranking
junior to the Series A Preferred Limited Partner Units as to the payment of
distributions, the exchange of Common Limited Partner Units for REIT Shares in
accordance with Section 8.6 of the Agreement, the repurchase of Common Limited
Partner Units in connection with the exercise by the holders thereof of the Cash
Tender rights set forth in Section 8.6 of the Agreement, the exchange of Common
Limited Partner Units for General Partner Units as provided in the Agreement or
the repayment, return, forfeiture and cancellation of Common Limited Partner
Units issued in connection with land acquisitions by the Partnership as and to
the extent provided pursuant to the purchase or other acquisition agreement
relating to any such acquisition. When distributions have not been paid in full
upon the Series A Preferred Limited Partner Units on the applicable Series A
Distribution Payment Date (or a sum sufficient for such full payment is not set
apart therefor), all distributions declared and paid on the Series A Preferred
Limited Partner Units and any other series of outstanding Preferred Limited
Partner Units ranking on a parity with the Series A Preferred Limited Partner
Units as to the payment of distributions shall be declared and paid so that the
amount of distributions declared and paid on the Series A Preferred Limited
Partner Units and such other series of Preferred Limited Partner Units shall in
all cases bear to each other the same ratio that the respective distribution
rights of the Series A Preferred Limited Partner Units and such other series of
Preferred Limited Partner Units (which shall not include any accumulation in
respect of unpaid distributions for prior distribution periods if such other
series of Preferred Limited Partner Units do not have cumulative distribution
rights) bear to each other.
(d) The holders of outstanding Series A Preferred Limited Partner Units
will be entitled to receive, when, as and if declared by the Operating
Partnership acting through the General Partner out of funds legally available
therefor, such cash distributions, in addition to those described in Sections
3(a) through (c), that may be necessary to preserve the status of IAC Capital
Trust as a real estate investment trust for federal income tax purposes.
3
<PAGE> 4
(e) Holders of Series A Preferred Limited Partner Units shall not be
entitled to any distributions whether payable in cash, property or otherwise, in
excess of the full cumulative distributions as herein provided. Distributions
with respect to the dissolution, liquidation, winding-up or termination of the
Partnership shall be governed by Section 4 hereof.
SECTION 4. Liquidation. Subject to the rights of the holders of any other
series of Preferred Limited Partner Units which the Partnership may issue in the
future which rank on a parity with the Series A Preferred Limited Partner Units
upon any voluntary or involuntary dissolution, liquidation, winding-up or
termination of the Partnership, the holders of the Series A Preferred Limited
Partner Units will be entitled to receive upon any such dissolution,
liquidation, winding-up or termination of the Partnership out of the assets of
the Partnership legally available for distribution, after payment or provision
for payment of debts and other liabilities of the Partnership, an amount per
Series A Preferred Limited Partner Unit equal to the Stated Value, plus
accumulated and unpaid distributions thereon to the date of payment (the "SERIES
A LIQUIDATION PREFERENCE AMOUNT") and no more. If, upon any such liquidation,
dissolution, winding-up or termination, there are insufficient assets to permit
full payment to the holders of Series A Preferred Limited Partner Units and any
other series of outstanding Preferred Limited Partner Units ranking on a parity
upon liquidation, dissolution, winding-up or termination of the Partnership with
the Series A Preferred Limited Partner Units, the holders of Series A Preferred
Limited Partner Units and such other series of Preferred Limited Partner Units
shall be paid ratably in proportion to the full distributable amount to which
holders of Series A Preferred Limited Partner Units and such other series of
Preferred Limited Partner Units are respectively entitled upon liquidation,
dissolution, winding-up or termination. The full preferential amount payable to
holders of the Series A Preferred Limited Partner Units and such other series of
outstanding Preferred Limited Partner Units upon any such liquidation,
dissolution, winding-up or termination will be paid in full before any
distribution or payment is made to the holders of General Partner Units, Common
Limited Partner Units and Preferred Limited Partner Units of any series ranking
junior to the Series A Preferred Limited Partner Units upon liquidation,
dissolution, winding-up or termination of the Partnership. The consolidation or
merger of the Partnership with or into any corporation, trust, partnership or
other entity (or of any corporation, trust, partnership or entity with or into
the Partnership) shall not be deemed to constitute a liquidation, dissolution,
winding-up or termination of the Partnership.
SECTION 5. Stated Maturity and Redemption. (a) The Series A Preferred
Limited Partner Units shall mature and the Stated Value thereof shall be due and
payable on December 31, 2092 (the "STATED MATURITY DATE") whether or not the
term of the Partnership is extended. On the Stated Maturity Date the holders of
4
<PAGE> 5
Series A Preferred Limited Partner Units shall be entitled to receive, upon
surrender of their certificates for the Series A Preferred Limited Partner
Units, out of funds legally available for distribution an amount in cash equal
to the Stated Value per Series A Preferred Limited Partner Unit, plus
accumulated and unpaid distributions thereon to the date of payment (the "STATED
MATURITY PRICE") and no more.
(b) Except in the case of a Tax Event or Investment Company Act Event
(each as defined in Section 4(c) below), the Series A Preferred Limited Partner
Units may not be redeemed prior to December 31, 2002. On or after such date the
Partnership shall have the right to redeem the Series A Preferred Limited
Partner Units, in whole or in part, from time to time, upon notice as provided
in Section 4(d) below, at a redemption price equal to the Stated Value per
Series A Preferred Limited Partner Unit plus, subject to Section 5(g) hereof,
accumulated and unpaid distributions to the date of payment (the "SERIES A
REDEMPTION PRICE"), provided that the Partnership may not redeem fewer than all
the outstanding Series A Preferred Limited Partner Units unless all accumulated
and unpaid distributions have been paid on all Series A Preferred Limited
Partner Units for all quarterly distributions periods ending on or prior to the
date of redemption.
(c) If, at any time prior to December 31, 2002, a Tax Event or
Investment Company Event (each, a "SPECIAL EVENT") shall occur and be
continuing, the Partnership shall have the right to redeem the Series A
Preferred Limited Partner Units in whole but not in part at the Series A
Redemption Price, provided, however, that, if at the time there is available to
the Partnership or IAC Capital Trust the opportunity to eliminate, within a
90-day period, the Special Event by taking some ministerial action
(collectively, "MINISTERIAL ACTIONS"), such as filing a form or making an
election, or pursuing some other similar reasonable measure, which in the sole
judgment of the General Partner has or will cause no adverse effect on IAC
Capital Trust, the Partnership, Irvine Apartment Communities or the holders of
the Series A Preferred Securities and will involve no material cost, the
Partnership and IAC Capital Trust will pursue such measure in lieu of such
redemption, provided, further, that the Partnership shall have no right to
redeem the Series A Preferred Limited Partner Units while the Partnership or the
Regular Trustees (as defined in the Declaration of Trust) on behalf of IAC
Capital Trust are pursuing any such Ministerial Action. The Partnership shall
have the right, upon not less than 30 nor more than 60 days' notice, to redeem
the Series A Preferred Limited Partner Units in whole for cash at the Series A
Redemption Price as provided in Section 5(b) within 90 days following the
occurrence of such Special Event (subject to extension for the number of days
Ministerial Actions are pursued).
5
<PAGE> 6
"INVESTMENT COMPANY EVENT" means that the Partnership and the Regular
Trustees of IAC Capital Trust shall have received an opinion of nationally
recognized independent counsel experienced in practice under the Investment
Company Act of 1940, as amended (the "1940 ACT"), that as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency, or regulatory authority (a "CHANGE IN 1940 ACT LAW"), there is more than
an insubstantial risk that IAC Capital Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after January 14, 1998.
"TAX EVENT" means that the Partnership and the Regular Trustees of IAC
Capital Trust shall have received an opinion of nationally recognized
independent tax counsel experienced in such matters that there is more than an
insubstantial risk that IAC Capital Trust does not qualify, or within 90 days of
the date of such opinion would no longer qualify, as a REIT under the Code and
Regulations for any reason whatsoever, provided that a Tax Event shall not
include the voluntary election by the Regular Trustees and/or the holders of the
Common Securities (as defined in the Declaration of Trust) of IAC Capital Trust
to terminate IAC Capital Trust's status as a real estate investment trust for
Federal income tax purposes.
(d) The Partnership will provide notice of any redemption of the Series
A Preferred Limited Partner Units to the holders of record thereof not less than
30 nor more than 60 days prior to the date of redemption and in the case of a
mandatory repayment of the Series A Preferred Limited Partner Units on the
Stated Maturity Date will provide notice of such repayment not less than 30 nor
more than 60 days prior to the Stated Maturity Date. Such notice shall be
provided by mailing notice of such redemption or mandatory repayment, first
class postage prepaid, to each holder of Series A Preferred Limited Partner
Units to be redeemed or to all holders in the event of mandatory repayment on
the Stated Maturity Date, at such holder's address as it appears on the transfer
records of the Partnership. Each such notice shall state, as appropriate, the
following:
(i) the redemption date or the Stated Maturity Date;
(ii) the Series A Redemption Price or the Stated Maturity Price;
(iii) the place or places where certificates for the Series A
Preferred Limited Partner Units may be surrendered for payment;
(iv) the number of the Series A Preferred Limited Partner Units to
be redeemed from each holder;
6
<PAGE> 7
(v) that payment of the Series A Redemption Price or the Stated
Maturity Price will be made upon presentation and surrender of such Series
A Preferred Limited Partner Units; and
(vi) that on or after the Stated Maturity Date or the redemption
date distributions on the Series A Preferred Limited Partner Units to be
redeemed or repaid will cease to accrue.
No failure to give or defect in a notice of redemption shall affect the validity
of the proceedings for redemption of any Series A Preferred Limited Partner
Units except as to the holder to which notice was defective or not given.
(e) If notice (which notice will be irrevocable) has been given as
provided above then, by 12:00 noon, New York City time, on the redemption date
or the Stated Maturity Date, as the case may be, the Partnership will deposit
irrevocably in trust for the benefit of the Series A Preferred Limited Partner
Units being redeemed or repaid funds sufficient to pay the applicable Series A
Redemption Price or Stated Maturity Price, as the case may be, and will give
irrevocable instructions and authority to pay such Series A Redemption Price or
Stated Maturity Price, as the case may be, to the holders of the Series A
Preferred Limited Partner Units entitled thereto. If notice shall have been
given as provided above and funds deposited as required, then upon the date of
such deposit, distributions will cease to accrue on the Series A Preferred
Limited Partner Units called for redemption or to be repaid, as the case may be,
such Series A Preferred Limited Partner Units will not longer be deemed to be
outstanding and all rights of holders of such Series A Preferred Limited Partner
Units so called for redemption or to be repaid, as the case may be, will cease,
except the right of the holders of such Series A Preferred Limited Partner Units
to receive the applicable Series A Redemption Price or Stated Maturity Price, as
the case may be, but without interest thereon. If the Stated Maturity Date or
any date fixed for redemption of Series A Preferred Limited Partner Units is not
a Business Day, then payment of the Series A Redemption Price or the Stated
Maturity Price, as the case may be, payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day falls in
the next calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on the
Stated Maturity Date or such date fixed for redemption. If payment of the Series
A Redemption Price or the Stated Maturity Price, as the case may be, in respect
of the Series A Preferred Limited Partner Units is improperly withheld or
refused and not paid by the Partnership, distributions on such Series A
Preferred Limited Partner Units will continue to accumulate from the original
redemption date or the Stated Maturity Date, as the case may be, to the date of
payment, in which case the actual payment date will
7
<PAGE> 8
be used for purposes of calculating the applicable Series A Redemption Price or
the Stated Maturity Price, as the case may be. If fewer than all of the Series A
Preferred Limited Partner Units are to be redeemed, the General Partner shall
select Series A Preferred Limited Partner Units to be redeemed by lot or pro
rata (as nearly as practicable without creating fractional units) or in some
other equitable manner determined by the General Partner in its sole discretion.
Upon presentation of any certificate for Series A Preferred Limited Partner Unit
redeemed in part only, the Partnership shall execute and deliver, at the expense
of the Partnership, a new certificate equal to the unredeemed portion of the
Certificate so presented.
(f) In the event of any redemption of Series A Preferred Limited Partner
Units in part, the Partnership shall not be required to (i) issue, register the
transfer of or exchange any Series A Preferred Limited Partner Units during a
period beginning at the opening of business 15 days before any selection for
redemption of Series A Preferred Limited Partner Units and ending at the close
of business on the earliest date on which the relevant notice of redemption is
deemed to have been given to all holders of Series A Preferred Limited Partner
Units to be redeemed and (ii) register the transfer of or exchange any Series A
Preferred Limited Partner Units so selected for redemption, in whole or in part,
except the unredeemed portion of any Series A Preferred Limited Partner Units
being redeemed in part.
(g) The Series A Preferred Limited Partner Units do not have the benefit
of any sinking fund.
(h) Notwithstanding any other provision of this Section 5, the Series A
Redemption Price (other than the portion thereof consisting of accumulated and
unpaid distributions) shall be payable solely out of the sales proceeds of
capital stock of the General Partner, which will be contributed by the General
Partner to the Partnership as an additional capital contribution in accordance
with Section 4.5.E of the Agreement, or the sale proceeds of Limited Partner
Interests and from no other source, it being understood that this Section 5(h)
shall not be applicable to payment of the Series A Liquidation Preference Amount
or the Stated Maturity Price.
SECTION 6. Voting Rights. (a) Except as provided in Section 6(b) hereof or
as otherwise required by law and the Agreement, holders of Series A Preferred
Limited Partner Units shall not be entitled to vote on any matter. In any matter
in which the Series A Preferred Limited Partner Units are entitled to vote, each
Series A Preferred Limited Partner Unit shall be entitled to one vote.
8
<PAGE> 9
(b) If any proposed amendment or modification of the Agreement would
materially and adversely affect the powers, special rights, preferences or
privileges of the Series A Preferred Limited Partner Units, then the holders of
outstanding Series A Preferred Limited Partner Units shall be entitled to vote
on such amendment or modification as a class, and such amendment or modification
shall not be effective except with the approval of holders of at least 66 2/3%
of the outstanding Series A Preferred Limited Partner Units, voting as a single
class; provided, however, that any such amendment or modification that would
authorize, create or issue any additional series of Preferred Limited Partner
Units ranking on a parity with or junior to the Series A Preferred Limited
Partner Units as to distributions or upon liquidation, dissolution, winding-up
or termination of the Partnership shall not be deemed to materially and
adversely effect such powers, special rights, preferences or privileges; and,
provided, further, that prior to December 31, 2002, any amendment or
modification to the definition of Tax Event shall be deemed to materially and
adversely affect such powers, special rights, preferences and privileges.
SECTION 7. Restrictions on Ownership and Transfer. The Series A Preferred
Limited Partner Units shall be owned and held solely by IAC Capital Trust and,
in addition to the restrictions on Transfer set forth in the Agreement, the
Series A Preferred Limited Partner Units may not be Transferred in whole or in
part, and no interest therein may be transferred, pledged, assigned or otherwise
disposed of, except to a successor of IAC Capital Trust pursuant to and in
accordance with the Declaration of Trust.
SECTION 8. Ranking. The Series A Preferred Limited Partner Units rank with
respect to distributions and rights upon liquidation, dissolution, winding-up or
termination of the Partnership (i) senior to the General Partner Units and the
Common Limited Partner Units and (ii) on a parity with all other series of
Preferred Limited Partner Units issued by the Partnership unless the terms of
such other series specifically provide that such other series ranks junior to
the Series A Preferred Limited Partner Units.
SECTION 9. Miscellaneous. (a) The Series A Preferred Limited Partner Units
are not convertible into or exchangeable for any other property or securities of
the Partnership or the General Partner.
(b) The form of certificate for the Series A Preferred Limited Partner
Units is attached hereto as Annex 1.
(c) In the event the Partnership or any of its subsidiaries purchases
outstanding Series A Preferred Securities by tender, in the open market or by
private agreement in accordance with the terms thereof, the Partnership may
9
<PAGE> 10
deliver, or cause to be delivered, to the Property Trustee (as defined in the
Declaration of Trust) for cancellation the Series A Preferred Securities so
purchased and, if so delivered, the Property Trustee as the registered owner of
the series of Preferred Limited Partner Units with substantially similar
economic terms shall promptly deliver to the Partnership for cancellation an
equal number of such series of Preferred Limited Partner Units and such
Preferred Limited Partner Units so cancelled shall no longer be deemed
outstanding. In such event, the Partnership shall deliver to the Property
Trustee a new certificate for the Preferred Limited Partner Units of such series
which remain outstanding.
10
<PAGE> 11
IN WITNESS WHEREOF, the General Partner has executed this Designation
Instrument as of this 20th day of January, 1998 and the Agreement is hereby
amended pursuant to Section 4.5.F thereof.
IRVINE APARTMENT COMMUNITIES, INC.,
in its capacity as general partner of
Irvine Apartment Communities, L.P.
By:_____________________________________
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
<PAGE> 12
ANNEX I
TO
EXHIBIT E
FORM OF SERIES A
PREFERRED LIMITED PARTNER UNIT CERTIFICATE
THIS CERTIFICATE AND THE SERIES A PREFERRED LIMITED PARTNER INTERESTS EVIDENCED
HEREBY ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF IRVINE APARTMENT
COMMUNITIES, L.P. DATED JANUARY 20, 1998, AS AMENDED (THE "PARTNERSHIP
AGREEMENT") AND THE DESIGNATION INSTRUMENT REFERRED TO BELOW, COPIES OF WHICH
MAY BE OBTAINED FROM IRVINE APARTMENT COMMUNITIES, INC., GENERAL PARTNER, AT ITS
PRINCIPAL EXECUTIVE OFFICE.
Number of
Series A Preferred
Certificate Number Limited Partner Units
------ ------
IRVINE APARTMENT COMMUNITIES, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that THE BANK OF NEW YORK, as Property Trustee under that certain
Amended and Restated Declaration of Trust dated as of January 20, 1998 of IAC
Capital Trust is the registered owner of ___________________________
FULLY PAID SERIES A PREFERRED LIMITED PARTNER UNITS OF
IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
properly endorsed. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Series A Preferred Limited
Partner Units are set forth in, and this certificate and the Series A Preferred
Limited Partner Units represented hereby are issued and shall be subject to the
terms and provisions of, the Partnership Agreement as the same may be amended,
modified, supplemented or restated from time to time, including the designation
of the terms of the Series A Preferred Limited Partner Units as set forth in
Exhibit E thereto.
12
<PAGE> 1
EXHIBIT 4.4
------------------
AMENDED AND RESTATED DECLARATION OF TRUST
OF
IAC CAPITAL TRUST
Dated as of January 20, 1998
------------------
<PAGE> 2
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions..............................................................2
Affiliate........................................................................2
Appointment Event................................................................2
Banking Institution..............................................................2
Beneficial Ownership.............................................................3
Book Entry Interest..............................................................3
Business Day.....................................................................3
Business Trust Act...............................................................3
Capital Securities...............................................................3
Certificate......................................................................3
Certificate of Terms.............................................................3
Certificate of Trust.............................................................3
Charitable Beneficiary...........................................................3
Charitable Trust.................................................................3
Charitable Trustee...............................................................4
Clearing Agency..................................................................4
Clearing Agency Participant......................................................4
Closing Price....................................................................4
Code.............................................................................4
Commission.......................................................................4
Common Security..................................................................4
Common Security Certificate......................................................4
Covered Person...................................................................4
Creditor.........................................................................5
Definitive Preferred Security Certificates.......................................5
Delaware Trustee.................................................................5
Depositary Agreement.............................................................5
Distribution.....................................................................5
DTC..............................................................................5
</TABLE>
- --------
* This Table of Contents does not constitute part of the Amended and
Restated Declaration of Trust and should not have any bearing upon the
interpretation of any of its terms or provisions.
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Excess Preferred Securities......................................................5
Exchange Act.....................................................................5
Execution Date...................................................................5
Fiscal Year......................................................................5
Global Certificate...............................................................5
Holder...........................................................................5
IAC, Inc.........................................................................5
Indemnified Person...............................................................5
Investment Company...............................................................6
Investment Company Act...........................................................6
Legal Action.....................................................................6
Liquidation Distribution.........................................................6
Majority in aggregate liquidation amount of the Securities.......................6
Market Price.....................................................................6
NASD.............................................................................6
NYSE.............................................................................6
Original Declaration.............................................................6
Outstanding..................................................................... 6
Ownership Limit..................................................................6
Partnership Agreement............................................................7
Paying Agent.....................................................................7
Person...........................................................................7
Preferred L.P. Units.............................................................7
Preferred Security...............................................................7
Preferred Security Certificate...................................................7
Preferred Security Distribution Payment Date.....................................7
Preferred Security Indirect Owner................................................7
Property Account.................................................................7
Property Trustee.................................................................7
Purported Beneficial Transferee..................................................8
Purported Record Transferee......................................................8
Quorum...........................................................................8
REIT.............................................................................8
Registration Statement...........................................................8
Regular Trustee..................................................................8
Resignation Request..............................................................8
Responsible Officer..............................................................8
Rule 3a-7........................................................................9
SEC..............................................................................9
Securities.......................................................................9
Securities Act...................................................................9
66-2/3% in liquidation amount of the Securities..................................9
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Event....................................................................9
Special Regular Trustee..........................................................9
Successor Delaware Trustee.......................................................9
Successor Property Trustee.......................................................9
Successor Securities.............................................................9
Trading Day......................................................................9
Transfer........................................................................10
Treasury Regulations............................................................10
Trustee or Trustees ............................................................10
ARTICLE II
ORGANIZATION
SECTION 2.1 Name...................................................................10
SECTION 2.2 Office.................................................................10
SECTION 2.3 Purpose................................................................11
SECTION 2.4 Authority..............................................................11
SECTION 2.5 Title to Property of the Trust.........................................12
SECTION 2.6 Powers and Duties of the Regular Trustees..............................12
SECTION 2.7 Prohibition of Actions by Trust and Trustees...........................15
SECTION 2.8 Powers and Duties of the Property Trustee..............................15
SECTION 2.9 Delaware Trustee.......................................................18
SECTION 2.10 Certain Rights and Duties of the Property Trustee......................18
SECTION 2.11 Registration Statement and Related Matters.............................21
SECTION 2.12 Filing of Amendments to Certificate of Trust...........................22
SECTION 2.13 Execution of Documents by Regular Trustees.............................22
SECTION 2.14 Trustees Not Responsible for Recitals or Issuance of Securities........22
SECTION 2.15 Duration of Trust......................................................22
ARTICLE III
SPONSOR
SECTION 3.1 Purchase of Common Securities by IAC, Inc. and Management..............22
SECTION 3.2 Expenses...............................................................23
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ARTICLE IV
TRUSTEES
SECTION 4.1 Number of Trustees; Qualifications.....................................24
SECTION 4.2 Appointment, Removal and Resignation of Trustees.......................26
SECTION 4.3 Vacancies Among Trustees...............................................29
SECTION 4.4 Effect of Vacancies....................................................29
SECTION 4.5 Meetings...............................................................30
SECTION 4.6 Delegation of Power....................................................30
ARTICLE V
DISTRIBUTIONS
SECTION 5.1 Distributions..........................................................31
ARTICLE VI
ISSUANCE OF SECURITIES
SECTION 6.1 General Provisions Regarding Securities................................31
ARTICLE VII
TERMINATION OF TRUST
SECTION 7.1 Termination of Trust...................................................34
ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1 General................................................................35
SECTION 8.2 Restriction on Ownership and Transfers of Preferred Securities;
Exchange for Excess Preferred Securities...............................35
SECTION 8.3 Excess Preferred Securities............................................39
SECTION 8.4 Settlement.............................................................42
SECTION 8.5 Remedies Not Limited...................................................43
SECTION 8.6 Ambiguity..............................................................43
SECTION 8.7 Severability...........................................................43
SECTION 8.8 Regular Trustees Discretion............................................43
SECTION 8.9 Transfer of Certificates...............................................43
SECTION 8.10 Deemed Security Holders................................................44
SECTION 8.11 Book Entry Interests...................................................44
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SECTION 8.12 Notices to Holders of Certificates.....................................45
SECTION 8.13 Appointment of Successor Clearing Agency...............................45
SECTION 8.14 Definitive Preferred Securities Certificates...........................45
SECTION 8.15 Mutilated, Destroyed, Lost or Stolen Certificates......................46
ARTICLE IX
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 9.1 Exculpation............................................................46
SECTION 9.2 Indemnification........................................................47
ARTICLE X
ACCOUNTING
SECTION 10.1 Fiscal Year............................................................47
SECTION 10.2 Certain Accounting Matters.............................................47
SECTION 10.3 Banking................................................................48
SECTION 10.4 Withholding............................................................48
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 Amendments.............................................................49
SECTION 11.2 Meetings of the Holders of Securities; Action by Written Consent.......50
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 12.1 Representations and Warranties of Property Trustee and
Delaware Trustee.......................................................52
ARTICLE XIII
MERGER
SECTION 13.1 No Merger, Consolidation or Amalgamation of Trust......................53
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SECTION 13.2 Merger, Consolidation or Amalgamation of Trust.........................53
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices................................................................54
SECTION 14.2 Undertaking for Costs..................................................56
SECTION 14.3 Governing Law..........................................................56
SECTION 14.4 Headings...............................................................56
SECTION 14.5 Partial Enforceability.................................................56
SECTION 14.6 Counterparts...........................................................57
SECTION 14.7 Intention of the Parties...............................................57
SECTION 14.8 Successors and Assigns.................................................57
SECTION 14.9 Personal Liability.....................................................57
EXHIBIT A - Certificate of Trust of IAC Capital Trust...............................A-1
EXHIBIT B - Initial Purchasers of Common Securities.................................B-1
ANNEX I - Form of Common Securities Certificate.....................................1-1
ANNEX II - Form of Preferred Securities Certificate................................II-1
</TABLE>
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<PAGE> 8
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
IAC CAPITAL TRUST
January 20, 1998
AMENDED AND RESTATED DECLARATION OF TRUST dated and effective as of
January 20, 1998 by the undersigned trustees (together with all other Persons
from time to time duly appointed and serving as trustees in accordance with the
provisions of this Declaration, the "Trustees"), Irvine Apartment Communities,
L.P., a Delaware limited partnership ("IAC, L.P."), as the trust sponsor, the
sole general partner of which is Irvine Apartment Communities, Inc., a Maryland
corporation ("IAC, Inc."), IAC, Inc. and by the holders, from time to time, of
undivided beneficial interests in the assets of the Trust, subject to the
priority and payment terms of each class or series of Securities (as defined
herein) to be issued pursuant to this Amended and Restated Declaration of Trust.
WHEREAS, IAC, Inc., IAC, L.P. and the Trustees entered into a Declaration
of Trust dated as of October 31, 1997 (the "Original Declaration") in order to
establish a statutory business trust (the "Trust") under the Business Trust Act
(as hereinafter defined);
WHEREAS, the Certificate of Trust of the Trust (the "Certificate of
Trust") was filed with the office of the Secretary of State of the State of
Delaware on October 31, 1997;
WHEREAS, the Trustees, IAC, L.P. and IAC, Inc. desire to continue the
Trust pursuant to the Business Trust Act for the purpose of (i) issuing and
selling Preferred Securities (as defined herein) representing, subject to the
priority and payment terms of each class or series of Securities, undivided
beneficial interests in the assets of the Trust for cash and investing the
proceeds thereof in Preferred L.P. Units (as hereinafter defined) of IAC, L.P.
to be held as assets of the Trust and (ii) issuing and selling Common Securities
(as defined herein) representing, subject to the priority and payment terms of
each class or series of Securities, undivided beneficial interests in the assets
of the Trust, to IAC, Inc. and to certain members of management of IAC, Inc. in
exchange for cash and investing the proceeds thereof in an interest bearing
account in, or certificate of deposit of, a Banking Institution (as defined
herein); and
NOW, THEREFORE, it being the intention of the parties hereto that the
Trust constitute a business trust under the Business Trust Act, that the
Original Declaration be amended and restated in its entirety as provided herein
and that this Amended and Restated Declaration of Trust, as amended, modified or
supplemented as
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<PAGE> 9
provided herein, constitute the governing instrument of such business trust, the
Trustees declare that all assets referred to in clauses (i) and (ii) of the
previous Whereas clause purchased by the Trust will be held in trust for the
benefit of the Holders (as defined herein) of the Securities representing
undivided beneficial interests in the assets of the Trust, subject to the
priority and payment terms of each class or series of Securities, issued
hereunder, subject to the provisions of this Amended and Restated Declaration of
Trust, as amended, modified or supplemented as provided herein.
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Amended and Restated Declaration of Trust (including Exhibits (the
"Exhibits") and Annexes hereto (the "Annexes") and the Certificate of Terms of
each series of Preferred Securities (the "Certificates of Terms")), as modified,
supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Exhibits and Annexes are to Articles and Sections of and Exhibits and Annexes to
this Declaration unless otherwise specified; and
(e) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act or any successor rule thereunder.
"Appointment Event" means, with respect to a series of Preferred
Securities, any events defined as an Appointment Event in the Certificate of
Terms for such series of Preferred Securities.
"Banking Institution" means a banking institution whose long-term
unsecured indebtedness is rated by a "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2) under the
Securities Act, at least equal to (but in no event less than "A" or the
equivalent) the highest rating
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<PAGE> 10
assigned to any outstanding series of Preferred Securities by a nationally
recognized statistical rating organization.
"Beneficial Ownership" means, with respect to any Person, ownership of
securities of a series of Preferred Securities equal to the sum of (i) the
securities of such series of Preferred Securities directly owned by such Person,
(ii) the number of securities of such series of Preferred Securities indirectly
owned by such Person, (if such Person is an "individual" as defined in section
542(a)(2) of the Code) taking into account the constructive ownership rules of
section 544 of the Code, as modified by section 856(h) of the Code, and (iii)
the number of Preferred Securities of such series which such Person is deemed to
beneficially own pursuant to Rule 13d-3 under the Exchange Act or which is
attributed to such Person pursuant to section 318 of the Code, as modified by
section 856(d)(5) of the Code; provided that no security shall be included more
than once in calculating Beneficial Ownership. The terms "Beneficial Owner,"
"Beneficially Owns" and "Beneficially Owned" shall have the correlative
meanings.
"Book Entry Interest" means a beneficial interest in a Global Certificate
registered in the name of a Clearing Agency or a nominee thereof, ownership and
transfers of which shall be maintained and made through book entries by such
Clearing Agency as described in Section 8.11.
"Business Day" means any day other than Saturday, Sunday or any other day
on which commercial banks in New York, New York and Los Angeles, California are
authorized or required by applicable law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code ' 3801 et seq., as it may be amended from time to time.
"Capital Securities" means the Common Securities and the Preferred
Securities of the Trust.
"Certificate" means a Common Security Certificate or a Preferred Security
Certificate.
"Certificate of Terms" has the meaning set forth in Section 1.1(c).
"Certificate of Trust" has the meaning set forth in the second Whereas
clause above.
"Charitable Beneficiary" means the beneficiary of the Charitable Trust as
determined pursuant to Section 8.3(a).
"Charitable Trust" means the applicable trust created pursuant to Section
8.3(a).
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<PAGE> 11
"Charitable Trustee" means the trustee for the Charitable Trust, and any
successor trustee appointed by a majority of the Regular Trustees, meeting the
requirements of Sections 8.3(a)
"Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as depositary for a
series of Preferred Securities and in whose name or in the name of a nominee of
that organization, shall be registered a Global Certificate and which shall
undertake to effect book entry transfers and pledges of the Preferred Securities
of such series.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Price" means, on any date, the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the closing bid and
ask prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the NYSE or, if the Preferred Securities of a series are
not listed or admitted to trading on the NYSE, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Preferred Securities on
such series are listed or admitted to trading or, if the Preferred Securities of
a series are not listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System or,
if such system is no longer in use, the principal other automated quotations
system that may then be in use, or if the Preferred Securities of a series are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Preferred Securities of such series selected by a majority of the Regular
Trustees.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation as interpreted by any applicable Treasury
Regulations or other administrative pronouncements as in effect from time to
time.
"Commission" means the Securities and Exchange Commission.
"Common Security" has the meaning specified in Section 6.1(b).
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security substantially in the form of
Annex I.
"Covered Person" means (i) any officer, director, shareholder, partner,
member, representative, employee or agent of the Trust or its Affiliates, (ii)
any officer,
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<PAGE> 12
director, shareholder, partner, member, representative, employee or agent of
IAC, Inc. or its Affiliates and (iii) the Holders from time to time of the
Securities.
"Creditor" has the meaning specified in Section 3.2(d).
"Definitive Preferred Security Certificates" has the meaning set forth in
Section 8.11.
"Delaware Trustee" has the meaning set forth in Section 4.1(a)(3).
"Depositary Agreement" means, with respect to a series of Preferred
Securities, the agreement among the Trust, the Property Trustee and DTC with
respect to such series as the same may be amended or supplemented from time to
time.
"Distribution" has the meaning set forth in Section 5.1.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Excess Preferred Securities" means Excess Preferred Securities that
would, under Section 8.3(e), automatically be exchanged for Preferred Securities
upon a transfer of an interest in the Charitable Trust in which such Excess
Preferred Securities are held.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time or any successor legislation.
"Execution Date" means the date of execution and delivery of this
Declaration.
"Fiscal Year" has the meaning specified in Section 10.1.
"Global Certificate" has the meaning set forth in Section 8.11.
"Holder" means a Person in whose name a Certificate representing a
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"IAC, Inc." means Irvine Apartment Communities, Inc.
"Indemnified Person" means any Trustee, any Affiliate of any Trustee, any
officers, directors, shareholders, members, partners, employees, representatives
or agents of any Trustee, or any employee or agent of the Trust or its
Affiliates.
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<PAGE> 13
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time or any successor legislation.
"Legal Action" has the meaning specified in Section 2.6(i). "Liquidation
Distribution" has the meaning set forth in the Certificate of Terms of each
series of the Preferred Securities.
"Majority in aggregate liquidation amount of the Securities" means, except
as provided in the Certificate of Terms of each series of the Preferred
Securities, Holder(s) of outstanding Securities voting together as a single
class or, as the context may require, Holder(s) of outstanding Preferred
Securities or Common Securities voting separately as a class, or as the context
may require, Holder(s) of one or more outstanding series of Preferred Securities
voting together as a class, who are the record owners of the relevant class or
series of Securities whose aggregate liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued
and unpaid Distributions to the date upon which the voting percentages are
determined) represents more than 50% of the liquidation amount of all
outstanding Securities of such class or series.
"Market Price" on any date means the Closing Price on the Trading Day
immediately preceding such date.
"NASD" means the National Association of Securities Dealers, Inc.
"NYSE" means the New York Stock Exchange, Inc.
"Original Declaration" has the meaning set forth in the first WHEREAS
clause above.
"Outstanding" means the issued and outstanding shares of a series of
Preferred Securities of the Trust, provided that for purposes of the application
of the applicable Ownership Limit to any Person, the term "Outstanding" shall be
deemed to include the number of securities of the applicable series of Preferred
Securities that such Person alone could acquire pursuant to any options or
convertible securities.
"Ownership Limit" means with respect to any series of Preferred
Securities, such percentage or percentages of the Outstanding securities of such
series of Preferred Securities as shall be established by a majority of the
Regular Trustees at the time they authorize such series of Preferred Securities
pursuant to Section 6.1(d) and set forth in the related Certificate of Terms for
such series.
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<PAGE> 14
"Partnership Agreement" means the Second Amended and Restated Agreement of
Limited Partnership of IAC, L.P. dated as of January 20, 1998, as such agreement
may be amended, modified, supplemented or restated from time to time. A copy of
the Partnership Agreement shall be available for inspection at the office of the
secretary at the corporate headquarters of IAC, Inc.
"Paying Agent" has the meaning specified in Section 2.8(i).
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature;
provided that for purposes of Article VIII, "Person" means (a) an individual,
corporation, partnership, estate, trust (including a trust qualified under
section 401(a) or 501(c)(17), of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in section 642(c)
of the Code, association, private foundation within the meaning of 509(a) of the
Code, joint stock company or other entity and (b) also includes a group as that
term is used for purposes of Section 13(d)(3) of the Exchange Act.
"Preferred L.P. Units" means the Preferred Limited Partner Interests (as
defined in the Partnership Agreement) in IAC, L.P.
"Preferred Security" has the meaning specified in Section 6.1(b).
"Preferred Security Certificate" means a definitive certificate in fully
registered form representing a Preferred Security substantially in the form of
Annex II or in the form attached as an exhibit to a Certificate of Terms for a
series of Preferred Securities.
"Preferred Security Distribution Payment Date" means, with respect to a
series of Preferred Securities, the date on which a Distribution on such series
is to be paid as provided in the Certificate of Terms for such series.
"Preferred Security Indirect Owner" means, with respect to a Book Entry
Interest, a Person who is the beneficial owner of such Book Entry Interest, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
"Property Account" has the meaning specified in Section 2.8(c)(i).
"Property Trustee" means the Trustee meeting the eligibility requirements
set forth in Section 4.1(c) and having the duties set forth for the Property
Trustee herein.
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<PAGE> 15
"Purported Beneficial Transferee" means, with respect to any purported
Transfer of Preferred Securities which results in Excess Preferred Securities,
the purported beneficial transferee for whom the Purported Record Transferee
would have acquired shares of Preferred Securities, if such Transfer had not
resulted in an exchange for such Excess Preferred Securities pursuant to Section
8.2(c) (or in the event the provisions of Sections 8.2(a)(ii) and (iii) are in
effect, had been valid under Section 8.2(a)).
"Purported Record Transferee" means, with respect to any purported
Transfer of Preferred Securities which results in Excess Preferred Securities,
the holder of the Preferred Securities if such Transfer had not resulted in an
exchange for such Excess Preferred Securities pursuant to Section 8.2(c) (or in
the event the provisions of Sections 8.2(a)(ii) and (iii) are in effect, had
been valid under Section 8.2(a)).
"Quorum" means a majority of the Regular Trustees or, if there are only
two Regular Trustees, both such Regular Trustees and if there is only one
Regular Trustee, such Regular Trustee.
"REIT" means a Real Estate Investment Trust defined in section 856 of the
Code.
"Registration Statement" means a Registration Statement relating to the
registration of the Trust's Preferred Securities filed under the Securities Act.
"Regular Trustee" means, except for the Property Trustee, the Delaware
Trustee and a Special Regular Trustee, any Trustee who is an individual and an
officer or director of IAC, Inc. A "majority of the Regular Trustees" means, if
there are three or more Regular Trustees, a majority, if there are only two
Regular Trustees, both such Regular Trustees, and if there is only one Regular
Trustee, such Regular Trustee. In addition, when any action is required to be
taken under this Declaration by the Regular Trustees, an affirmative vote by a
majority of the Regular Trustees shall constitute proper authorization of such
action.
"Resignation Request" has the meaning specified in Section 4.2(d).
"Responsible Officer" means, with respect to the Property Trustee, the
chairman of the board of directors, the president, any vice-president, any
assistant vice-president, the secretary, any assistant secretary, the treasurer,
any assistant treasurer, any trust officer or assistant trust officer or any
other officer of the Property Trustee customarily performing functions similar
to those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
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<PAGE> 16
"Rule 3a-7" means Rule 3a-7 under the Investment Company Act or any
successor rule thereunder.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Common Securities, the Preferred Securities and the
Excess Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended from time to
time or any successor legislation.
"66-2/3% in liquidation amount of the Securities" means, except as
provided in the penultimate paragraph of Paragraph 6 of the Certificate of Terms
of each series of the Preferred Securities, Holder(s) of outstanding Securities
voting together as a single class or, as the context may require, Holder(s) of
outstanding Preferred Securities or Common Securities, voting separately as a
class, or as the context may require, Holder(s) of one or more outstanding
series of Preferred Securities voting together as a class, who are the record
owners of the relevant class or series of Securities whose liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) represents 66-2/3% or more of the liquidation
amount of all outstanding Securities of such class or series.
"Special Event" means any event(s) defined as a Special Event in a
Certificate of Terms for a series of Preferred Securities.
"Special Regular Trustee" means a Regular Trustee appointed in accordance
with Section 4.2(a)(ii)(B) if the Certificate of Terms of a series of Preferred
Securities provides for the appointment of a Special Regular Trustee upon the
occurrence of certain events.
"Successor Delaware Trustee" has the meaning specified in Section
4.2(b)(ii).
"Successor Property Trustee" means a successor Trustee possessing the
qualifications to act as Property Trustee under Section 4.1(c).
"Successor Securities" has the meaning specified in Section 13.2.
"Trading Day" means a day on which the principal national securities
exchange or interdealer quotation system on which the Preferred Securities of a
series are listed or admitted to trading is open for the transaction of business
or, if the Preferred Securities of such series are not listed or admitted to
trading on any national securities exchange or interdealer quotation system,
shall mean any day other than a Saturday, a
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<PAGE> 17
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Transfer" means with respect to the Preferred Securities, any sale,
transfer, gift, assignment, devise or other disposition of Preferred Securities
(including (i) the granting of any option (including, but not limited to, an
option to acquire an option or any series of such options) or entering into any
agreement for the sale, transfer or other disposition of Preferred Securities or
(ii) the sale, transfer, assignment or other disposition of any securities or
rights convertible into or exchangeable for Preferred Securities), whether
voluntary or involuntary, whether of record or Beneficial Ownership, and whether
by operation of law or otherwise (including, but not limited to, any transfer of
an interest in other entities which results in a change in the Beneficial
Ownership of Preferred Securities). The terms "Transfers" and "Transferred"
shall have correlative meaning.
"Treasury Regulations" means the income tax regulations including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.
ARTICLE II
ORGANIZATION
SECTION 2.1 Name.
The Trust continued by this Declaration is named "IAC Capital Trust" as
such name may be modified from time to time by the Regular Trustees following
written notice to the Holders of Securities. The Trust's activities may be
conducted under the name of the Trust or any other name deemed advisable by the
Regular Trustees.
SECTION 2.2 Office.
The address of the principal office of the Trust is c/o Irvine Apartment
Communities, Inc., 550 Newport Center Drive, Suite 300, Newport Beach,
California 92660. Upon ten days' written notice to the Holders, the Regular
Trustees may change
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<PAGE> 18
the location of the Trust's principal office. The name of the registered agent
and office of the Trust in the State of Delaware is The Bank of New York
(Delaware), White Clay Center, Route 273, Newark, Delaware 19711, Attention:
Corporate Trust Administration. At any time, the Regular Trustees may designate
another registered agent and/or registered office. The books and records of the
Trust will be maintained at the principal office of the Trust and will be open
for inspection by a Holder of Preferred Securities or its representatives for
any purpose reasonably related to its interest in the Trust during normal
business hours.
SECTION 2.3 Purpose.
The exclusive purposes and functions of the Trust are: (a) to issue and
sell the Preferred Securities in one or more series for cash (and in accordance
with this Declaration to issue Excess Preferred Securities); (b) to issue and
sell the Common Securities for cash and invest the proceeds of such sale in an
interest bearing account in, or certificate of deposit of, a Banking
Institution; (c) to invest the proceeds of the sale of each series of Preferred
Securities in a series of Preferred L.P. Units of IAC, L.P. with economic terms
substantially similar to the series of Preferred Securities; (d) to enter into
such agreements and arrangements as may be necessary in connection with the sale
of Preferred Securities and to take all action, and exercise such discretion, as
may be necessary or desirable in connection therewith and to file such
registration statements or make such other filings under the Securities Act, the
Exchange Act or state securities or "Blue Sky" laws and to file with any stock
exchange or interdealer quotation system any listing applications, as may be
necessary or desirable in connection therewith and the issuance of the Preferred
Securities; and (e) except as otherwise limited herein, to engage in only those
other activities necessary, convenient or incidental thereto.
SECTION 2.4 Authority.
Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. Any
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Property Trustee in accordance with its powers shall constitute the act of and
serve to bind the Trust. In dealing with the Trustees acting on behalf of the
Trust, no Person shall be required to inquire into the authority of the Trustees
to bind the Trust. Persons dealing with the Trust are entitled to rely
conclusively on the power and authority of the Trustees as set forth in this
Declaration.
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SECTION 2.5 Title to Property of the Trust.
Except as provided in Section 2.8 with respect to the Preferred L.P. Units
and the Property Account or unless otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust. The Holders shall
not have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust subject to the priority
and payment terms of each class or series of Securities.
SECTION 2.6 Powers and Duties of the Regular Trustees.
A majority of the Regular Trustees shall have the exclusive power,
authority and duty to cause the Trust, and shall cause the Trust, to engage in
the following activities:
(a) to issue and sell Preferred Securities and Common Securities from
time to time and to issue Excess Preferred Securities, in each case in
accordance with this Declaration including establishing the terms of each series
of Preferred Securities by amending the Declaration as set forth in Section
6.1(d); provided however, that there shall be no interests in the Trust other
than the Securities;
(b) in connection with the issuance of the Preferred Securities, at the
direction of IAC, L.P., to effect or cause to be effected the filings, and to
execute or cause to be executed, the documents, set forth in Section 2.11 and to
execute, deliver and perform on behalf of the Trust each Depositary Agreement;
(c) to invest the proceeds of the sale of each series of Preferred
Securities in a series of Preferred L.P. Units of IAC, L.P. with economic terms
substantially similar to the series of Preferred Securities so issued and sold;
provided, however, that the Regular Trustees shall cause legal title to all of
the Preferred L.P. Units to be vested in, the Preferred L.P. Units to be held of
record in the name of and a certificate or certificates representing any
Preferred L.P. Units to be issued in the name of, the Property Trustee for the
benefit of the Holders of the Preferred Securities;
(d) to invest the proceeds from the sale of the Common Securities in an
interest bearing account in, or certificate of deposit of, a Banking
Institution;
(e) to cause the Trust to enter into underwriting or purchase agreements
and such other agreements and arrangements as may be necessary or desirable in
connection with the sale of any series of Preferred Securities, and to take all
action, and exercise all discretion, as may be necessary or desirable in
connection with the consummation thereof;
(f) to give prompt written notice to the Property Trustee, the Holders
of
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the Common Securities and the Holders of any applicable series of Preferred
Securities of the occurrence of a Special Event;
(g) to declare Distributions on the Securities out of funds legally
available therefor at such times and in such amounts in accordance with the
terms of the Securities; and to establish a record date with respect to all
actions to be taken hereunder that require a record date be established,
including Distributions, voting rights and redemptions, and to issue relevant
notices to Holders of the Preferred Securities and Common Securities as to such
actions and applicable record dates;
(h) to determine in their absolute discretion the series of Preferred
Securities to be redeemed, to redeem the Preferred Securities in accordance with
the provisions of this Declaration and to take all actions, perform such duties
and make such determinations as may be necessary or incidental to the foregoing;
(i) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 2.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(j) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors and
consultants and pay reasonable compensation for such services;
(k) to incur expenses which are necessary, convenient or incidental to
carrying out any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities; the Regular Trustees hereby initially
appointing the Property Trustee for such purposes with respect to the Preferred
Securities;
(m) to take all actions, perform such duties and make such
determinations as may be required or permitted of the Regular Trustees pursuant
to this Declaration (including, without limitation, those specified in Articles
VI and VIII hereof and any ministerial actions taken in connection with a
Special Event) and the terms of the Securities;
(n) to take all action which may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Securities or
to enable the Trust to effect the purposes for which the Trust has been created;
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(o) to take all actions, not inconsistent with this Declaration or with
applicable law, which the Regular Trustees determine in their sole discretion to
be reasonable and necessary or desirable in carrying out the activities of the
Trust as set out in this Section 2.6, in order that:
(i) the Trust will not be deemed to be an Investment Company
required to be registered under the Investment Company Act; and
(ii) the Trust will be treated as a REIT for United States federal
income tax purposes;
provided that such actions do not materially and adversely affect the interests
of Holders; and provided further that Section 2.6(o)(ii) shall be effective so
long as the Trust has elected (or reelected) REIT status for United States
federal income tax purposes and not terminated such election (or reelection)
under Section 11.1(c) hereof;
(p) to take all action necessary to cause all applicable tax returns and
tax information reports that are required to be filed with respect to the Trust
to be duly prepared and filed by the Regular Trustees, on behalf of the Trust,
including providing to the Holders of the Common Securities, if necessary, a
power of attorney on IRS Form 2848;
(q) subject to the requirements of Rule 3a-7 to appoint one or more
Paying Agents in addition to the Property Trustee;
(r) to determine on which stock exchange or interdealer quotation
system, if any, the Preferred Securities of a series will be listed;
(s) to prepare or cause to be prepared, execute and file or cause to be
filed such reports and other information on behalf of the Trust with the
Commission and any stock exchange or interdealer quotation system on which the
Preferred Securities of a series may be listed as may be required under the
Exchange Act and the rules and regulations of the Commission thereunder or under
the rules of any such stock exchange or interdealer quotation system;
(t) to act as attorney-in-fact on behalf of each Holder of Common
Securities, if so appointed, and to take any and all acts and to execute and
deliver in the name of such Holder any and all documents, as authorized by such
power of attorney; and
(u) to execute all documents or instruments, perform all duties and
powers and do all things for and on behalf of the Trust in all matters necessary
or incidental to the foregoing.
The Regular Trustees must exercise the powers set forth in this Section
2.6
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in a manner which is consistent with the purposes and functions of the Trust set
out in Section 2.3 and the Regular Trustees shall not take any action which is
inconsistent with the purposes and functions of the Trust set forth in Section
2.3.
Subject to this Section 2.6, the Regular Trustees shall have none of the
powers nor any of the authority of the Property Trustee set forth in Section
2.8.
SECTION 2.7 Prohibition of Actions by Trust and Trustees.
The Trust shall not, and the Trustees (including the Property Trustee)
shall cause the Trust not to, engage in any activity other than as required or
authorized by this Declaration. In particular, the Trust shall not and the
Trustees (including the Property Trustee) shall not:
(a) invest any amounts received by the Trust from holding the Preferred
L.P. Units purchased by the Trust but shall promptly deposit such funds in the
Property Account;
(b) acquire any assets other than as expressly provided herein;
(c) possess Trust property for other than a Trust purpose;
(d) make any loans or investments, other than investments represented by
the Preferred L.P. Units and in connection with the investment of the proceeds
of the sale of the Common Securities;
(e) issue any securities or other evidences of beneficial ownership of,
or beneficial interests in, the Trust other than the Securities; or
(f) incur any indebtedness for borrowed money.
SECTION 2.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Preferred L.P. Units shall be owned by and
held of record in the name of the Property Trustee in trust for the benefit of
the Holders of the Securities. The right, title and interest of the Property
Trustee to the Preferred L.P. Units shall vest automatically in each Person who
may hereafter be appointed as Property Trustee in accordance with Article IV.
Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Preferred L.P. Units to the Regular Trustees or, if the Property
Trustee does not also act as the Delaware Trustee, the Delaware Trustee.
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(c) The Property Trustee shall:
(i) establish and maintain one or more segregated non-interest
bearing bank accounts (collectively, the "Property Account") in the name
of and under the exclusive control of the Property Trustee on behalf of
the Holders of the Preferred Securities and, on the receipt of payments of
funds made in respect of the Preferred L.P. Units purchased by the Trust,
deposit all such payments into the Property Account. Funds in the Property
Account shall be held uninvested, and without liability for interest
thereon, until disbursed in accordance with this Declaration. The Property
Account shall be an account which is maintained with a Banking
Institution;
(ii) if, as and when the Regular Trustees declare a Distribution
with respect to a series of Preferred Securities, the Property Trustee
shall, subject to the priority and payment terms of each class or series
of Securities but without any further act of the Property Trustee or the
Regular Trustees, on the applicable Preferred Security Distribution Date
pay, in accordance with Section 5.1, such Distribution to the Holders of
such series of Preferred Securities out of funds deposited in the Property
Account and the terms of such series of Preferred Securities;
(iii) if the Preferred Securities of a series are called for
redemption or are to be repaid upon their stated maturity or upon
liquidation, dissolution, winding up or termination of the Trust, the
Property Trustee shall, subject to the priority and payment terms of each
class or series of Securities but without any further act of the Property
Trustee or the Regular Trustees, on the applicable redemption or repayment
date pay to the Holders of such series of Preferred Securities out of
funds deposited in the Property Account the amount specified in the terms
of such series of Preferred Securities to be paid on such date in
accordance with Section 5.1 and the terms of such series of Preferred
Securities, any such redemption payment to be made solely out of funds
deposited in the Property Account from the redemption of Preferred L.P.
Units.
(iv) engage in such ministerial activities as shall be necessary or
appropriate to effect promptly the redemption of any series of the
Preferred Securities;
(v) upon notice of a Distribution issued by the Regular Trustees
in accordance with the terms of the Preferred Securities of a series,
engage in such ministerial activities as shall be necessary or appropriate
to effect promptly the Distribution pursuant to the terms of
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such series of Preferred Securities to Holders thereof; and
(vi) have the legal power to exercise all of the rights, powers and
privileges of a holder of the Preferred L.P. Units.
(d) The Property Trustee shall take all actions and perform such duties
as may be specifically required of the Property Trustee pursuant to the terms of
the Preferred Securities set forth in any Certificate of Terms.
(e) The Property Trustee shall take any Legal Action which arises out of
or in connection with the holding of Preferred L.P. Units or the Property
Trustee's duties and obligations under this Declaration or the Business Trust
Act.
(f) All moneys deposited in the Property Account, and all Preferred L.P.
Units held by the Property Trustee for the benefit of the Holders of the
Securities, will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of, or for the benefit of, the Property Trustee or
its agents or their creditors.
(g) The Property Trustee shall, within 90 days after the occurrence of
any event which could lead to Legal Action as set forth in (e) above, transmit
by mail, first class postage prepaid, to the Holders of the Securities, as their
names and addresses appear upon the register, notice of any such event known to
the Property Trustee, unless such event which could lead to Legal Action has
been remedied before the giving of such notice; provided, that, the Property
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers, of the Property Trustee in good faith determine
that the withholding of such notice is in the interests of the Holders of the
Securities. The Property Trustee shall not be deemed to have knowledge of any
such event, except (i) a default in the payment of a Distribution declared by
the Regular Trustees on a series of Preferred Securities, (ii) a default in the
payment of a Distribution declared by IAC, L.P. on the Preferred L.P. Units, or
(iii) any event as to which the Property Trustee shall have received written
notice or a Responsible Officer charged with the administration of this
Declaration shall have obtained written notice.
(h) The Property Trustee shall not resign as a Trustee unless either:
(i) the Trust has been completely liquidated and the proceeds
thereof distributed to the Holders of Securities in accordance with the priority
and payment terms of each class or series of Securities and this Declaration; or
(ii) a Successor Property Trustee has been appointed and accepted
that appointment in accordance with Article IV.
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(i) The Property Trustee shall act as paying agent in respect of the
Common Securities and, if the Preferred Securities are not in book entry only
form, the Preferred Securities (and, if applicable, Excess Preferred Securities)
and, subject to Section 2.6(p), may authorize one or more Persons (each, a
"Paying Agent") to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to the Preferred Securities and any
Excess Preferred Securities. Any Paying Agent may be removed by the Property
Trustee, after consultation with the Regular Trustees, at any time and a
successor Paying Agent or additional Paying Agents may be appointed at any time
by the Property Trustee, subject to Section 2.6(q).
(j) Subject to this Section 2.8, the Property Trustee shall have none of
the powers or the authority of the Regular Trustees set forth in Section 2.6.
(k) The Property Trustee shall exercise the powers, duties and rights
set forth in this Section 2.8 and Section 2.10 in a manner which is consistent
with the purposes and functions of the Trust set out in Section 2.3, and the
Property Trustee shall not take any action which is inconsistent with the
purposes and functions of the Trust set forth in Section 2.3.
SECTION 2.9 Delaware Trustee.
Notwithstanding any other provision of this Declaration other than Section
4.1(a)(3), the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Regular Trustees and the Property Trustee described in this Declaration.
Except as set forth in Section 4.1(a)(3), the Delaware Trustee shall be a
Trustee for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Business Trust Act. No implied covenants or obligations
shall be read into this Declaration against the Delaware Trustee.
SECTION 2.10 Certain Rights and Duties of the Property Trustee.
(a) The Property Trustee undertakes to perform only such duties as are
specifically set forth in this Declaration and shall exercise the same degree of
care as a prudent individual would exercise under the circumstances in the
conduct of his or her own affairs, and no implied covenants shall be read into
this Declaration against the Property Trustee.
(b) If the Property Trustee fails to take Legal Action for or on behalf
of a series of Preferred Securities as provided in Section 2.8(e) hereof, a
Majority in aggregate liquidation amount of such series of the Preferred
Securities may direct the Property Trustee to take such Legal Action on behalf
of such series. If the Property Trustee fails to enforce its rights under the
Partnership Agreement with respect to a series of Preferred L.P. Units, any
Holder of Preferred Securities that is adversely affected thereby may institute
a legal proceeding directly against IAC, L.P. to enforce such rights, without
first
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instituting a legal proceeding against the Property Trustee or any other person.
(c) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) the duties and obligations of the Property Trustee shall be
determined solely by the express provisions of this Declaration, and the
Property Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Declaration,
and no implied covenants or obligations shall be read into this
Declaration against the Property Trustee;
(ii) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Property Trustee; but in the
case of any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Property Trustee, the
Property Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Declaration;
(iii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(iv) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders as provided in Section 2.10(b) hereof, or
exercising any trust or power conferred upon the Property Trustee under
this Declaration; and
(v) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable
ground for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration or adequate
indemnity against such risk or liability is not reasonably assured to it.
(d) Subject to the provisions of Section 2.10(a) and (c):
(i) whenever in the administration of this Declaration, the
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Property Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder,
the Property Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part and, if the Trust
is excluded from the definition of Investment Company solely by means of
Rule 3a-7, subject to the requirements of Rule 3a-7, request and rely upon
a certificate, signed by a majority of the Regular Trustees or by an
authorized officer of IAC, L.P., as the case may be;
(ii) The Property Trustee (A) may consult with counsel (which may
be counsel to IAC, L.P. or any of its Affiliates and may include any of
its employees) selected by it in good faith and with due care and the
written advice or opinion of such counsel with respect to legal matters
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon and in accordance with such advice and opinion and (B)
shall have the right at any time to seek instructions concerning the
administration of this Declaration from any court of competent
jurisdiction;
(iii) The Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Property Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney
appointed by it in good faith and with due care;
(iv) The Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Declaration at the
request or direction of any Holders, unless such Holders shall have
offered to the Property Trustee reasonable security and indemnity against
the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction; and
(v) Any action taken by the Property Trustee or its agents
hereunder shall bind the Holders of the Securities and the signature of
the Property Trustee or its agents alone shall be sufficient and effective
to perform any such action; and no third party shall be required to
inquire as to the authority of the Property Trustee to so act, or as to
its compliance with any of the terms and provisions of this Declaration,
both of which shall be conclusively evidenced by the Property Trustee's or
its agent's taking such action.
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SECTION 2.11 Registration Statement and Related Matters.
IAC, Inc., IAC, L.P. and the Trustees hereby authorize and direct IAC,
L.P., as the sponsor of the Trust, (i) to file with the Commission and execute,
in each case on behalf of the Trust, (a) registration statements on Form S-11 or
other appropriate form, including any amendments to such registration
statements, relating to the registration under the Securities Act of any
Preferred Securities of the Trust and (b) registration statements on Form 8-A or
other appropriate form (including all amendments thereto) relating to the
registration of any Preferred Securities of the Trust under Section 12(b) of the
Exchange Act; (ii) to file with any stock exchange or interdealer quotation
system and execute on behalf of the Trust listing applications and all other
applications, statements, certificates, agreements and other instruments as
shall be necessary or desirable to cause any Preferred Securities to be listed
on a stock exchange or interdealer quotation system; (iii) to file and execute
on behalf of the Trust such applications, reports, surety bonds, irrevocable
consents, appointments of attorney for service of process and other papers and
documents as shall be necessary or desirable to register any Securities under
the securities or "Blue Sky" laws of such jurisdictions as IAC, L.P. on behalf
of the Trust, may deem necessary or desirable, (iv) to prepare and execute
letters or documents to or instruments with, the Depository Trust Company
relating to any series of Preferred Securities or Excess Preferred Securities,
(v) to execute on behalf of the Trust such underwriting or purchase agreements
as may be necessary or desirable in connection with sale of any Securities to
any initial purchasers thereof and (vi) to incur (or cause IAC, L.P. to incur)
expenses, execute documents and to take any and other actions as shall be
necessary or desirable in offering any series of Preferred Securities. In the
event that any filing referred to in clauses (i)-(iii) above is required by the
rules and regulations of the Commission, any stock exchange or interdealer
quotation system or state securities or blue sky laws, to be executed on behalf
of the Trust by the Trustees, the Regular Trustees, in their capacities as
Trustees of the Trust, are hereby authorized and directed to join in any such
filing and to execute on behalf of the Trust any and all of the foregoing, it
being understood that the Property Trustee and the Delaware Trustee, in their
capacities as Trustees of the Trust, shall not be required to join in any such
filing or execute on behalf of the Trust any such document unless required by
the rules and regulations of the Commission, any stock exchange or interdealer
quotation system or state securities or blue sky laws. In connection with all of
the foregoing, IAC, L.P. and each Trustee, solely in its capacity as Trustee of
the Trust, hereby constitute and appoint James E. Mead, Shawn Howie, Jeffrey
Small and James M. Lurie and each of them, as his, her or its, as the case may
be, true and lawful attorneys-in-fact, and agents, with full power of
substitution and resubstitution, for IAC, L.P. or such Trustee or in IAC, L.P.'s
or such Trustee's name, place and stead, in any and all capacities, to sign any
and all documents referred to in clauses (i) - (vi) above and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as IAC,
L.P. or such Trustee might or could do in person, hereby
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ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his or her substitute or substitutes, shall do or cause to be
done by virtue hereof.
SECTION 2.12 Filing of Amendments to Certificate of Trust.
The Certificate of Trust as filed with the Secretary of State of the State
of Delaware on October 31, 1997 is attached hereto as Exhibit A. On or after the
date of execution of this Declaration, the Trustees shall cause the filing with
the Secretary of State of the State of Delaware of such amendments to the
Certificate of Trust as the Regular Trustees shall deem necessary or desirable.
SECTION 2.13 Execution of Documents by Regular Trustees.
Unless otherwise determined by the Regular Trustees and except as
otherwise required by the Business Trust Act with respect to the Certificate of
Trust or otherwise, a majority of the Regular Trustees are authorized to execute
and deliver on behalf of the Trust any documents which the Regular Trustees have
the power and authority to execute or deliver pursuant to this Declaration.
SECTION 2.14 Trustees Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities shall be
taken as the statements of IAC, L.P., as sponsor of the Trust, and the Trustees
do not assume any responsibility for their correctness. The Trustees make no
representations as to the value or condition of the property of the Trust or any
part thereof. The Trustees make no representations as to the validity or
sufficiency of this Declaration or the Securities.
SECTION 2.15 Duration of Trust.
The Trust, absent termination pursuant to the provisions of Article VII
hereof, shall have existence until December 31, 2092.
ARTICLE III
SPONSOR
SECTION 3.1 Purchase of Common Securities by IAC, Inc. and Management.
On the Execution Date, IAC, Inc. and certain members of management of IAC,
Inc. set forth in Exhibit B hereto will purchase the number of Common Securities
issued by the Trust as are set forth opposite the name of such Person in Exhibit
B hereto, at $25.00 per Common Security, for an aggregate purchase price of
$5,000.00. The Regular Trustees are hereby authorized to issue and sell
additional Common Securities to
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IAC, Inc. or members of management of IAC, Inc. at such times and for such
consideration as the Regular Trustees in their sole discretion may deem
advisable.
SECTION 3.2 Expenses.
(a) IAC, L.P. shall be responsible for and shall pay for all debts and
obligations (other than with respect to the Securities) and all costs and
expenses of the Trust (including, but not limited to, costs and expenses
relating to the organization, formation and initial capitalization of the Trust,
all costs and expenses of the Trust being a public company, including costs of
filings with the Commission, reports and other distributions to the Holders of
Preferred Securities issued by the Trust, Commission and NASD fees payable with
respect to any Registration Statement of the Trust, all costs and expenses,
including any stock exchange or interdealer quotation system listing fees,
relating to the issuance of Preferred Securities pursuant to such Registration
Statement and this Declaration, the issuance of the Preferred Securities to
initial purchasers thereof, the fees and expenses (including reasonable counsel
fees and expenses) of the Trustees (including any amounts payable under Article
IX), the costs and expenses relating to the operation of the Trust, including
without limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses, costs
and expenditures related to qualification as a REIT and maintenance of REIT
status and costs and expenses incurred in connection with the disposition of
Trust assets).
(b) IAC, L.P. will pay any and all United States federal, state, local,
and foreign taxes, and other assessments of a similar nature (other than
withholding taxes imposed on Distributions to Holders of Trust Securities), and
all liabilities, costs and expenses with respect to such taxes or assessments of
the Trust.
(c) IAC, L.P. will be primarily liable for any indemnification
obligations arising with respect to the Declaration.
(d) IAC, L.P.'s obligations under this Section 3.2 shall be for the
benefit of, and shall be enforceable by, any Person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice hereof. Any such Creditor may enforce IAC,
L.P.'s obligations under this Section 3.2 directly against IAC, L.P., and IAC,
Inc. and IAC, L.P. irrevocably waive any right or remedy to require that any
such Creditor take any action against the Trust or any other Person before
proceeding against IAC, L.P. IAC, Inc. and IAC, L.P. agree to execute such
additional agreements as may be necessary or desirable in order to give full
effect to the provisions of this Section 3.2.
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ARTICLE IV
TRUSTEES
SECTION 4.1 Number of Trustees; Qualifications.
(a) The number of Trustees initially shall be three (3). At any time (i)
before the issuance of Securities, IAC, L.P. may, by written instrument,
increase or decrease the number of, and appoint, remove and replace the,
Trustees, and (ii) after the issuance of Securities and except as provided in
clause (5) below and Section 4.2(a)(ii)(B) with respect to the Special Regular
Trustee, the number of Trustees may be increased or decreased solely by, and
Trustees may be appointed, removed or replaced solely by, vote of Holders of
Common Securities representing a Majority in liquidation amount of the Common
Securities voting as a class; provided that in any case:
(1) the number of Trustees shall be at least three (3) unless the
Trustee that acts as the Property Trustee also acts as the Delaware
Trustee, in which case the number of Trustees shall be at least two (2);
(2) unless a Special Regular Trustee has been appointed (which
appointment shall not impair the right of the Holders of Common Securities
to increase or decrease the number of, or to appoint, remove or replace,
Trustees (other than the Special Regular Trustee) as provided above), one
or more of the Trustees shall at all times be an officer of IAC, Inc.;
(3) if required by the Business Trust Act, one Trustee (the
"Delaware Trustee") shall be either a natural person who is a resident of
the State of Delaware or, if not a natural person, an entity which has its
principal place of business in the State of Delaware and otherwise is
permitted to act as a Trustee hereunder under the laws of the State of
Delaware, except that if the Property Trustee has its principal place of
business in the State of Delaware and otherwise is permitted to act as a
Trustee hereunder under the laws of the State of Delaware, then the
Property Trustee shall also be the Delaware Trustee and Section 2.9 shall
have no application;
(4) there shall at all times be a Property Trustee hereunder which
shall satisfy the requirements of Section 4.1(c); and
(5) the number of Trustees shall be increased
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automatically by one (1) if an Appointment Event has occurred and is
continuing and the Holders of a Majority in aggregate liquidation amount
of the applicable series of Preferred Securities entitled to vote appoint
a Special Regular Trustee in accordance with and subject to Section
4.2(a)(ii)(B) and the terms of such series of Preferred Securities.
Each Trustee shall be either a natural person at least 21 years of age or a
legal entity which shall act through one or more duly appointed representatives.
(b) The initial Regular Trustee shall be:
James E. Mead
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive
Suite 300
Newport Beach, California 92660
(c) There shall at all times be one Trustee which shall act as Property
Trustee. In order to act as Property Trustee hereunder, such Trustee shall:
(i) not be an Affiliate of IAC, Inc., IAC, L.P., The Irvine
Company or Donald Bren;
(ii) be a corporation organized and doing business under the laws
of the United States of America or any State or Territory thereof or of
the District of Columbia, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least
$50,000,000, and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to
the requirements of the supervising or examining authority referred to
above, then for the purposes of this Section 4.1(c)(ii), the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published; and
(iii) if the Trust is excluded from the definition of an Investment
Company solely by reason of Rule 3a-7 and to the extent Rule 3a-7 requires
a trustee having certain qualifications to hold title to the "eligible
assets" (as defined in Rule 3a-7) of the Trust, the Property Trustee shall
possess those qualifications.
If at any time the Property Trustee shall cease to satisfy the
requirements
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of clauses (i)-(iii) above, the Property Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(d).
The initial Trustee which shall serve as the Property Trustee is The Bank
of New York, whose address is as set forth in Section 14.1(b).
(d) The initial Trustee which shall serve as the Delaware Trustee is The
Bank of New York (Delaware), whose address is as set forth in Section 14.1(c).
(e) Any action taken by (i) Holders of Common Securities pursuant to
this Article IV or (ii) Holders of Preferred Securities pursuant to this Article
IV to appoint or remove a Special Regular Trustee upon the occurrence of an
Appointment Event, shall be taken at a meeting of Holders of Common Securities
or Preferred Securities, as the case may be, convened for such purpose or by
written consent as provided in Section 11.2.
(f) No amendment may be made to this Section 4.1 which would change any
rights with respect to the number, existence or appointment and removal of
Trustees (other than any Special Regular Trustee), except with the consent of
each Holder of Common Securities. In addition, no amendment or modification may
be made to Section 4.1(c)(iii) unless the Trust receives an unqualified written
opinion addressed to the Trust and delivered to the Regular Trustee of a
nationally recognized independent counsel experienced in such matters that such
amendment will not cause the Trust to be an Investment Company or controlled by
an Investment Company.
(g) No amendment may be made to this Section 4.1 or Section
4.2(a)(ii)(B), which would change the rights of Holders of a series of Preferred
Securities to appoint, remove or replace a Special Regular Trustee upon the
occurrence of an Appointment Event applicable to such series except with the
consent of each Holder of Preferred Securities of such series.
(h) Any corporation into which the Delaware Trustee or the Property
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Delaware Trustee or the Property Trustee shall be a party, or any corporation
succeeding to the corporate trust business of the Delaware Trustee or the
Property Trustee, shall be the successor of the Delaware Trustee or the Property
Trustee hereunder, as applicable, provided that such corporation shall be
qualified under the provisions of this Section 4.1, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
SECTION 4.2 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 4.2(b), Trustees may be appointed, removed or
replaced without cause at any time:
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(i) until the issuance of any Securities, by written instrument
executed by IAC, L.P.; and
(ii) after the issuance of any Securities,
(A) other than with respect to a Special Regular Trustee, by
vote of the Holders of a Majority in liquidation amount of the Common
Securities voting as a class; and
(B) subject to the next two sentences of this clause (B), if
an Appointment Event has occurred and is continuing with respect to one or
more series of Preferred Securities, one (1) additional Regular Trustee
for all such series, who shall have the same rights, powers and privileges
under this Declaration as the Regular Trustees, (the "Special Regular
Trustee"), may be appointed, who need not be an employee or officer of, or
otherwise an Affiliate of IAC, Inc., by vote of the Holders of a Majority
in aggregate liquidation amount of the series of Preferred Securities so
affected (voting separately as a class with all other series of Preferred
Securities upon which like voting rights have been conferred and are
exercisable) and such Special Regular Trustee may only be removed
(otherwise than by the operation of Section 4.2(c)), by vote of the
Holders of a Majority in liquidation amount of each series of Preferred
Securities upon which like voting rights have been conferred and are
exercisable voting as a single class. Only one Special Regular Trustee
shall be appointed with respect to all series of Preferred Securities upon
whom the right to appoint a Special Regular Trustee upon the occurrence of
an Appointment Event shall have been conferred pursuant to the Certificate
of Terms for such series notwithstanding that such right with respect to a
series of Preferred Securities becomes exercisable subsequent to a Special
Regular Trustee having been appointed by any other series of Preferred
Securities. In such event, the Special Regular Trustee so appointed shall,
without any further act or vote by the Holders of any series of Preferred
Securities, be deemed to have been appointed to act in such capacity for
all series of Preferred Securities upon which like voting rights have been
conferred and are exercisable.
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(b) (i) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 4.2(a) until a
Successor Property Trustee possessing the qualifications
to act as Property Trustee under Section 4.1(c) has been
appointed and has accepted such appointment by written
instrument executed by such Successor Property Trustee
and delivered to the Regular Trustees, IAC, L.P. and the
Property Trustee being removed; and
(ii) the Trustee that acts as Delaware Trustee shall not be
removed in accordance with Section 4.2(a) until a
successor Trustee possessing the qualifications to act
as Delaware Trustee under Section 4.1(a)(3) (a
"Successor Delaware Trustee") has been appointed and has
accepted such appointment by written instrument executed
by such Successor Delaware Trustee and delivered to the
Regular Trustees, IAC, L.P. and the Delaware Trustee
being removed.
(c) A Trustee appointed to office shall hold office until his successor
shall have been appointed or until his death, removal or resignation; provided
that a Special Regular Trustee shall only hold office while an Appointment Event
is continuing and shall cease to hold office immediately after the Appointment
Event with respect to each series of Preferred Securities pursuant to which the
Special Regular Trustee was appointed and all other Appointment Events cease to
be continuing.
(d) Any Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument (a "Resignation Request") in writing
signed by the Trustee and delivered to IAC, L.P. and the Trust, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that:
(i) no such resignation of the Trustee that acts as the Property
Trustee shall be effective until:
(A) a Successor Property Trustee possessing the
qualifications to act as Property Trustee under Section 4.1(c) has been
appointed and has accepted such appointment by instrument executed by such
Successor Property Trustee and delivered to the Trust, IAC, L.P. and the
resigning Property Trustee; or
(B) if the Trust is excluded from the
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definition of an Investment Company solely by reason of Rule 3a-7, until
the assets of the Trust have been completely liquidated and the proceeds
thereof distributed to the Holders of the Securities in accordance with
the priority and payment terms of each class or series of Securities;
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, IAC, L.P. and the
resigning Delaware Trustee; and
(iii) no such resignation of a Special Regular Trustee shall be
effective until the 60th day following delivery of the Resignation Request
to IAC, L.P. and the Trust or such later date specified in the Resignation
Request during which period the Holders of the Preferred Securities of all
series upon which the right to appoint a Special Regular Trustee upon the
occurrence of an Appointment Event shall have been conferred and are then
exercisable shall have the right to appoint a successor Special Regular
Trustee as provided in this Article IV.
(e) If no Successor Property Trustee or Successor Delaware Trustee shall
have been appointed and accepted appointment as provided in this Section 4.2
within 60 days after delivery to IAC, L.P. and the Trust of a Resignation
Request, the resigning Property Trustee or Delaware Trustee may petition any
court of competent jurisdiction for appointment of a Successor Property Trustee
or Successor Delaware Trustee. Such court may thereupon after such notice, if
any, as it may deem proper and prescribe, appoint a Successor Property Trustee
or Successor Delaware Trustee, as the case may be.
SECTION 4.3 Vacancies Among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 4.1 or if the number of Trustees is
increased pursuant to Section 4.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by a majority of the Regular Trustees
shall be conclusive evidence of the existence of such vacancy. The vacancy shall
be filled with a Trustee appointed in accordance with the requirements of this
Article IV.
SECTION 4.4 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee, or
any one of them, shall not operate to annul the Trust. Whenever a vacancy in the
number of Regular
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Trustees shall occur until such vacancy is filled as provided in this Article
IV, the Regular Trustees in office, regardless of their number, shall have all
the powers granted to the Regular Trustees and shall discharge all the duties
imposed upon the Regular Trustees by this Declaration.
SECTION 4.5 Meetings.
Meetings of the Regular Trustees shall be held from time to time upon the
call of any Trustee. Regular meetings of the Regular Trustees may be held at a
time and place fixed by resolution of the Regular Trustees. Notice of any
in-person meeting of the Regular Trustees shall be hand delivered or otherwise
delivered in writing (including by facsimile, with a hard copy by overnight
courier) not less than 48 hours before such meeting. Notice of any telephonic
meeting of the Regular Trustees or any committee thereof shall be hand delivered
or otherwise delivered in writing (including by facsimile, with a hard copy by
overnight courier) not less than 24 hours before such meeting. Notices shall
contain a brief statement of the time, place and anticipated purposes of the
meeting. The presence (whether in person or by telephone) of a Regular Trustee
at a meeting shall constitute a waiver of notice of such meeting except where a
Regular Trustee attends a meeting for the express purpose of objecting to the
transaction of any activity on the ground that the meeting has not been lawfully
called or convened. Unless provided otherwise in this Declaration, any action of
the Regular Trustees may be taken at a meeting by vote of a majority of the
Regular Trustees present (whether in person or by telephone) and eligible to
vote with respect to such matter; provided that a Quorum is present, or without
a meeting by the unanimous written consent of the Regular Trustees.
SECTION 4.6 Delegation of Power.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any registration statement or amendment
thereto or other document or schedule filed with the Commission or any stock
exchange or interdealer quotation system or making any other governmental filing
(including, without limitation to filings referred to in Section 2.11).
(b) The Regular Trustees shall have power to delegate from time to time
to such of their number or to officers of the Trust or IAC, Inc. the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Regular Trustees or otherwise as the Regular Trustees
may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.
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ARTICLE V
DISTRIBUTIONS
SECTION 5.1 Distributions.
Holders shall receive (i) periodic distributions when, as and if declared
by the Regular Trustees out of funds legally available for the payment therefor
("Distributions") and (ii) redemption payments and liquidation distributions, in
each case, in accordance with the applicable terms of the relevant Holder's
Securities and subject to each class or series priority and payment terms.
ARTICLE VI
ISSUANCE OF SECURITIES
SECTION 6.1 General Provisions Regarding Securities.
(a) The Regular Trustees shall issue on behalf of the Holders,
Securities in fully registered form representing undivided beneficial interests
in the assets of the Trust subject to the priority and payment terms of each
class or series of Securities in accordance with this Article VI.
(b) The Regular Trustees may issue from time to time on behalf of the
Trust up to (i) 20,000 common securities (liquidation amount $25.00 per common
security) representing common undivided beneficial interests in the assets of
the Trust, subject to the priority and payment terms of each class or series of
Securities, (the "Common Securities"), (ii) 25 million preferred securities
issuable in one or more series, as provided in Section 6.1(d) below representing
preferred undivided beneficial interests in the assets of the Trust, subject to
the priority and payment terms of each class or series of Securities (the
"Preferred Securities"), and (iii) 25 million securities of a class designated
Excess Preferred Securities issuable in one or more series as provided in
Section 6.1(e) below. The Trust shall have no securities or other interests in
the assets of the Trust other than the Preferred Securities, the Common
Securities and the Excess Preferred Securities.
(c) (i) The Common Security Certificates evidencing the Common
Securities shall be substantially in the form attached hereto as Annex I, with
such changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice;
(ii) The proceeds from the sale of any Common Securities shall be
invested in an interest bearing account in, or certificate of deposit of,
a
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Banking Institution;
(iii) The Holders of Common Securities are entitled to one vote per
Common Security on all matters submitted for a vote of the Holders of
Common Securities and, except as otherwise provided in Section 11.1(a) or
in respect of any series of Preferred Securities hereafter established,
the exclusive voting power for all purposes (including with respect to
amendments to this Declaration) shall be vested in the Holders of the
Common Securities;
(iv) Subject to the provisions of law and any preferential rights
of any series of Preferred Securities hereafter established, Holders of
Common Securities are entitled to receive ratably such Distributions as
may be declared from time to time on the Common Securities by a majority
of the Regular Trustees in their sole and absolute discretion from funds
legally available therefor;
(v) Unless otherwise provided in this Declaration, matters
submitted for approval to Holders of Common Securities require a majority
vote of the Common Securities present and voting thereon. The Holders of
Common Securities have the exclusive right (subject to the terms of the
Declaration) to appoint, remove or replace Trustees and to increase or
decrease the number of Trustees, subject to the right of Holders of the
Preferred Securities of a series to appoint (subject to Section 4.2(a)(B))
a Special Regular Trustee upon the occurrence of an Appointment Event with
respect to such series;
(vi) Subject to (1) the preferential rights of outstanding series
of Preferred Securities, if any and (2) the preferential rights of
outstanding series of Excess Preferred Securities, if any, in the event of
any liquidation, dissolution, winding up or termination of the Trust,
whether voluntary or involuntary, each Holder of Common Securities shall
be entitled, after payment or provision for payment of the debts and other
liabilities of the Trust and the amount to which the Holders of any series
of Preferred Securities and Excess Preferred Securities hereafter
classified or reclassified as having a preference upon liquidation,
dissolution, winding up or termination of the Trust shall be entitled, to
receive ratably with each other Holder of Common Securities all remaining
assets of the Trust available for distribution to the Holders of Common
Securities; and
(vii) Holders of Common Securities have no subscription, redemption,
conversion or preemptive rights;
(d) A majority of Regular Trustees are authorized, subject to any
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limitations prescribed by law and the provisions of this Article VI, to provide
for the issuance of the shares of Preferred Securities in series, by executing a
Certificate of Terms to establish from time to time the number of securities to
be included in each such series, and to fix the designations, powers,
preferences and rights of the securities of each such series and the
qualifications, limitations or restrictions thereof including, but not limited
to, the Ownership Limit applicable to such series of Preferred Securities;
provided, however, that the Regular Trustees shall not approve the issuance of a
series of Preferred Securities that would cause the Trust to be deemed an
Investment Company required to be registered under the Investment Company Act.
Except as required by law, as provided in Section 11.1(a) or as otherwise
provided in a Certificate of Terms with respect to a series of Preferred
Securities, Holders of Preferred Securities shall have no voting rights. Subject
to the provisions contained in Section 11.1(a), the Regular Trustees are
authorized to establish the terms of a series of Preferred Securities and to
cause the issuance thereof without the consent or vote of Holders of any class
or series of Securities. Upon issuance of a series of Preferred Securities, the
Certificate of Terms shall constitute an amendment to this Declaration and shall
become a part hereof whether or not attached hereto and an original executed
copy of such Certificate of Terms shall be delivered to the Property Trustee.
(e) At such time as the Regular Trustees authorize a series of Preferred
Securities pursuant to Section 6.1(d), without any further or separate action of
the Regular Trustees, there shall be deemed to be authorized a series of Excess
Preferred Securities consisting of the number of securities included in the
series of Preferred Securities and having terms, rights, restrictions and
qualifications identical thereto, except to the extent that Article VIII
requires different terms. In such event, any appropriate correlative
modification in all defined terms shall be deemed to have been made.
(f) The Certificates shall be signed on behalf of the Trust by a
majority of the Regular Trustees. Such signatures may be the manual or facsimile
signatures of the present or any future Regular Trustee. Typographical and other
minor errors or defects in any such reproduction of any such signature shall not
affect the validity of any Certificate. In case any Regular Trustee of the Trust
who shall have signed any of the Certificates shall cease to be such Regular
Trustee before the Certificate so signed shall be delivered by the Trust, such
Certificate nevertheless may be delivered as though the person who signed such
Certificate had not ceased to be such Regular Trustee; and any Certificate may
be signed on behalf of the Trust by such persons as, at the actual date of the
execution of such Certificate, shall be the Regular Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Regular Trustee. Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
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interdealer quotation system on which such Securities may be listed, or to
conform to usage. Pending the preparation of definitive Certificates, the
Regular Trustees on behalf of the Trust may execute temporary Certificates
(printed, lithographed or typewritten), in substantially the form of the
definitive Certificates in lieu of which they are issued, but with such
omissions, insertions and variations as may be appropriate for temporary
Certificates, all as may be determined by the Regular Trustees. Each temporary
Certificate shall be executed by the Regular Trustees on behalf of the Trust
upon the same conditions and in substantially the same manner, and with like
effect, as definitive Certificates. Without unnecessary delay, the Regular
Trustees on behalf of the Trust will execute and furnish definitive Certificates
and thereupon any or all temporary Certificates may be surrendered to the
transfer agent and registrar in exchange therefor (without charge to the
Holders). Each Certificate for Preferred Securities whether in temporary or
definitive form shall be countersigned by the manual signature of an authorized
signatory of the Person acting as registrar and transfer agent with respect to
such Securities, which shall initially be the Property Trustee.
(g) The consideration received by the Trust for the issuance of the
Capital Securities shall constitute a contribution to the capital of the Trust
and shall not constitute a loan to the Trust.
(h) Upon issuance of the Securities as provided in this Declaration, the
Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable.
(i) Every Person, by virtue of having become a Holder or a Preferred
Security Indirect Owner in accordance with the terms of this Declaration, shall
be deemed to have expressly assented and agreed to the terms of, and shall be
bound by this Declaration.
(j) Upon issuance of the Common Securities as provided in this
Declaration, the Regular Trustees on behalf of the Trust shall return to IAC,
Inc. the $10 constituting initial trust assets as set forth in the Original
Declaration.
ARTICLE VII
TERMINATION OF TRUST
SECTION 7.1 Termination of Trust.
This Declaration and the Trust shall terminate and be of no further force
or effect when:
(i) (A) all of the Preferred Securities of all series shall have
been repaid in accordance with the terms thereof or called for redemption
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and the amounts necessary for redemption thereof shall have been paid to
the Holders thereof in accordance with the priority and payment terms of
the Preferred Securities and (B) all of the Common Securities are no
longer outstanding; or
(ii) upon the expiration of the term of the Trust as set forth in
Section 2.15; or
(iii) upon the expiration of the term of IAC, L.P. on December 31,
2092, unless sooner dissolved.
and a certificate of cancellation is filed by the Trustees with the Secretary of
State of the State of Delaware. The Trustees shall so file such a certificate as
soon as practicable after the occurrence of an event referred to in this Section
7.1.
The provisions of Sections 2.10 and 3.2 and Article IX shall survive the
termination of the Trust.
ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1 General.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration.
(b) Common Securities are freely transferable.
(c) Subject to this Article VIII, Preferred Securities shall be freely
transferable.
SECTION 8.2 Restriction on Ownership and Transfers of Preferred Securities;
Exchange for Excess Preferred Securities.
(a) General.
(i) Except as provided in Section 8.2(f), no Person shall
Beneficially Own shares of a series of Preferred Securities in excess of
the Ownership Limit applicable to such series.
(ii) Except as provided in Section 8.2(f) (and subject to Section
8.4), any Transfer (whether or not such Transfer is the result of
transactions
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entered into through the facilities of any stock exchange of interdealer
quotation system) that, if effective, would result in any Person
Beneficially Owning securities of a series of Preferred Securities in
excess of the Ownership Limit applicable to such series shall be void ab
initio as to the Transfer of such securities which would be otherwise
Beneficially Owned by such Person in excess of the Ownership Limit
applicable to such series, and the intended transferee shall acquire no
rights in such securities.
(iii) Except as provided in Section 8.2(f) (and subject to Section
8.4), any Transfer (whether or not such Transfer is the result of a
transaction entered into through the facilities of any stock exchange or
interdealer quotation system) that, if effective, would result in the
Preferred Securities being Beneficially Owned by less than 100 Persons
(determined without reference to any rules of attribution) shall be void
ab initio as to the Transfer of such securities which would be otherwise
Beneficially Owned by the transferee and the intended transferee shall
acquire no rights in such securities.
(iv) A Transfer of Preferred Securities which is null and void
under (A) Section 8.2(a)(ii) because it could, if effective, result in the
ownership of a series of Preferred Securities in excess of the Ownership
Limit applicable to such Series or (B) Section 8.2(a)(iii) because it
could, if effective, result in the Preferred Securities being beneficially
owned by fewer than 100 Persons, shall not adversely affect the validity
of the Transfer of any other Preferred Securities in the same or any other
related transaction.
(b) Remedies for Breach.
If a majority of the Regular Trustees shall at any time determine in
good faith that a Transfer or other event has taken place in violation of
Section 8.2(a) (whether or not such violation is intended), or that a Person
intends to acquire or has attempted to acquire Beneficial Ownership of any
Preferred Securities in violation of Section 8.2(a), the majority of the Regular
Trustees shall be empowered to take any action as they deem advisable to refuse
to give effect to or to prevent such Transfer or other event, including, but not
limited to, refusing to give effect to such Transfer or other event on the books
of the Trust, demanding the repayment of any Distributions received in respect
of such Preferred Securities acquired in violation of Section 8.2(a) or
instituting proceedings to enjoin such Transfer or rescind such Transfer or
attempted Transfer; provided, however, that any Transfers or attempted Transfers
(or in the case of events other than a Transfer, Beneficial Ownership) in
violation of Section 8.2(a), regardless of any action (or non-action) by the
Regular Trustees, (i) shall be void ab initio and (ii) shall automatically
result in the exchange described in Section 8.2(c).
(c) Exchange for Excess Stock. If, notwithstanding the other provisions
contained in this Article VIII, at any time there is a purported Transfer
(whether or not such
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Transfer is the result of a transaction entered into through the facilities of
any stock exchange or interdealer quotation system) or other change in the
capital structure of the Trust or other event such that any Person would
Beneficially Own securities of a series of Preferred Securities in excess of the
Ownership Limit applicable to such series, then, except as otherwise provided in
Section 8.2(f), such Preferred Securities in excess of the Ownership Limit
applicable to such series (rounded up to the nearest whole security) shall be
automatically exchanged for an equal number of securities of Excess Preferred
Securities having the terms set forth in Section 8.3. Such exchange shall be
effective as of the close of business on the business day prior to the date of
the Transfer or change in capital structure or other event.
(d) Notice of Restricted Transfer. Any Person who acquires or attempts
to acquire Preferred Securities in violation of Section 8.2(a), or any Person
who is a transferee such that Excess Preferred Securities results under Section
8.2(c), shall immediately give written notice to the Trust of such event and
shall provide to the Regular Trustees such other information as the Regular
Trustees may request in order to determine the effect, if any, of such Transfer
or attempted Transfer or other event on the Trust's status as a REIT. Failure to
give such notice shall not limit the rights and remedies of the Regular Trustees
provided herein in any way.
(e) Owners Required to Provide Information. From and after the date of
this Declaration:
(i) Every record and Beneficial Owner of more than 5% (or such
other percentage between ' of 1% and 5%, as determined by a majority of
the Regular Trustees) of any series of Preferred Securities outstanding
shall, within 30 days after January 1 of each year, give written notice to
the Trust stating the name and address of such record or Beneficial Owner,
the number of securities of any series of Preferred Securities
Beneficially Owned, and a full description of how such securities are
held. Each such record or Beneficial Owner of Preferred Securities shall,
upon demand by the Trust, disclose to the Trust in writing such additional
information with respect to the Beneficial Ownership of the Preferred
Securities as a majority of the Regular Trustees, in their sole
discretion, deem appropriate or necessary to (i) comply with the
provisions of the Code regarding the qualification of the Trust as a REIT
under the Code, and (ii) ensure compliance with the applicable Ownership
Limit. Each Holder of record, including without limitation any Person
(including a Clearing Agency) who holds Preferred Securities on behalf of
a Beneficial Owner, shall take all reasonable steps to obtain the written
notice described in this Section 8.2(e)(i) from the Beneficial Owner.
(ii) Any Person who is a Beneficial Owner of securities of any
series of Preferred Securities and any Person (including the Holder) who
is holding Preferred Securities for a Beneficial Owner, and any proposed
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transferee of Preferred Securities, shall provide such information as a
majority of the Regular Trustees, in their sole discretion, may request in
order to determine the Trust's status or to comply with the requirements
of any taxing authority or other governmental agency, to determine any
such compliance or to ensure compliance with the applicable Ownership
Limit, and shall provide a statement or affidavit to the Trust setting
forth the number of securities of any series of Preferred Securities
already Beneficially Owned by such holder or proposed transferee and any
related persons specified, which statement or affidavit shall be in the
form prescribed by a majority of the Regular Trustees for that purpose.
(f) Exceptions.
(i) A majority of the Regular Trustees, upon receipt of a ruling
from the Internal Revenue Service or an opinion of nationally recognized
tax counsel experienced in such matters, may waive the application, in
whole or in part, of the applicable Ownership Limit to a Person, if such
Person is not an individual for purposes of section 542(a) of the Code and
is a corporation, partnership, estate or trust, provided, however, in no
event may any such exception cause such Person's ownership, direct or
indirect, to exceed 9.8% of the value of the Outstanding Preferred
Securities and Excess Preferred Securities, as such value is determined by
a majority of the Regular Trustees in their sole discretion. In connection
with any such exemption, a majority of the Regular Trustees may require
such representations and undertakings from such Person and may impose such
other conditions as they deem necessary, in their sole discretion, to
determine the effect, if any, of the proposed Transfer on the Trust's
status as a REIT.
(ii) For a period of 270 days following the purchase of any series
of Preferred Securities by an underwriter that (i) is a corporation,
limited liability company, partnership or other entity and (ii)
participates in an offering of such series of Preferred Securities, such
underwriter shall not be subject to the Ownership Limit applicable to such
series with respect to the Preferred Securities purchased by it as a part
of or in connection with such offering and with respect to any Preferred
Securities purchased in connection with market making activities.
(g) Legend.
Each Preferred Securities Certificate shall bear the following legend or
such other legend as the majority of the Regular Trustees may establish in
accordance with Section 6.1(d) at the time such series of Preferred Securities
is established:
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"THE PREFERRED SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER. NO PERSON MAY BENEFICIALLY OWN
SECURITIES OF THIS SERIES OF PREFERRED SECURITIES IN EXCESS OF THE
OWNERSHIP LIMIT APPLICABLE TO THIS SERIES OF PREFERRED SECURITIES, WITH
CERTAIN FURTHER RESTRICTIONS AND EXCEPTIONS SET FORTH IN THE AMENDED AND
RESTATED DECLARATION OF TRUST OF IAC CAPITAL TRUST DATED AS OF JANUARY 20,
1998, AS AMENDED FROM TIME TO TIME ("DECLARATION"). ANY PERSON WHO
ATTEMPTS TO BENEFICIALLY OWN SECURITIES OF THIS SERIES OF PREFERRED
SECURITIES IN EXCESS OF THE APPLICABLE LIMITATION MUST IMMEDIATELY NOTIFY
THE TRUST. ALL CAPITALIZED TERMS IN THIS LEGEND SHALL HAVE THE MEANINGS
ASCRIBED TO SUCH TERMS IN THE DECLARATION, AS THE SAME MAY BE AMENDED FROM
TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER,
WILL BE SENT WITHOUT CHARGE TO EACH HOLDER OF PREFERRED SECURITIES OF THIS
SERIES WHO REQUESTS SUCH A COPY. IF THE RESTRICTIONS ON TRANSFER ARE
VIOLATED, THE TRANSFER WILL BE VOID IN ACCORDANCE WITH THE DECLARATION AND
THE PREFERRED SECURITIES REPRESENTED HEREBY WILL BE AUTOMATICALLY
EXCHANGED FOR EXCESS PREFERRED SECURITIES WHICH WILL BE HELD IN TRUST IN
ACCORDANCE WITH THE DECLARATION."
SECTION 8.3 Excess Preferred Securities.
The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to Distributions,
qualifications and terms and conditions of redemption of the Excess Preferred
Securities of the Trust:
(a) Ownership in Trust.
Upon any purported Transfer, change in the capital structure of the
Trust or purported change in Beneficial Ownership that results in Excess
Preferred Securities pursuant to Section 8.2(c), such Excess Preferred
Securities shall be deemed to have been transferred to a Person as trustee of a
Charitable Trust for the exclusive benefit of one or
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more organizations described in sections 170(b), 170(c), or 501(c)(3) of the
Code (the "Charitable Beneficiary" or "Charitable Beneficiaries"), as shall be
designated by a majority of the Regular Trustees in writing, such trustee to be
a person who is unaffiliated with (i) the Trust, (ii) the Purported Beneficial
Transferee; and (iii) the Purported Record Transferee. At all times at least one
Charitable Beneficiary shall be designated by the Regular Trustees. Where a
Transfer or other event results in an automatic exchange of securities of more
than one series for Excess Preferred Securities, then separate Charitable Trusts
shall be deemed to have been established for the Excess Preferred Securities
attributable to the securities of each such series. Securities of Excess
Preferred Securities held in Charitable Trust for the exclusive benefit of the
Charitable Beneficiary shall be issued and outstanding securities of the Trust.
The trustee of the Charitable Trust will be deemed to own the Excess Preferred
Securities held in Charitable Trust for the exclusive benefit of the Charitable
Beneficiary on the day prior to the date of the violative transfer. The
Purported Beneficial Transferee shall have no rights in the shares of Excess
Preferred Securities except the right to receive a price for its interest in the
Preferred Securities which were exchanged for Excess Preferred Securities upon
the terms specified in Section 8.3(e).
(b) Distribution Rights.
Excess Preferred Securities shall be entitled to Distributions as if such
Excess Preferred Securities were Preferred Securities of the series or class in
existence immediately prior to the exchange of such Excess Preferred Securities,
provided that the Distributions shall be paid to the Charitable Trustee to be
held in Charitable Trust for the exclusive benefit of the Charitable
Beneficiary. Any Distribution paid prior to the discovery by the Trust that the
Preferred Securities have been exchanged for Excess Preferred Securities shall
be repaid to the Trust upon demand or, at the Trust's sole election, shall be
offset against any future Distributions payable to the Purported Record
Transferee. Any Distributions so disgorged shall be paid over to the Charitable
Trustee for the exclusive benefit of the Charitable Beneficiary.
(c) Rights Upon Liquidation.
Subject to the preferential rights of Preferred Securities, if any, each
Purported Beneficial Transferee of Excess Preferred Securities shall be entitled
to receive that portion of the assets of the Trust which a Holder of Preferred
Securities that was exchanged for such Excess Preferred Securities would have
been entitled to receive on liquidation had such Preferred Securities remained
outstanding provided that no Purported Beneficial Transferee shall be entitled
to receive any amounts in excess of the price per security such Purported
Beneficial Transferee paid for the Preferred Securities in any purported
Transfer that resulted in the Excess Preferred Securities or, if the Purported
Beneficial Transferee did not give value for such Excess Preferred Securities
(through a gift, devise or other transaction) in any purported Transfer, a price
per security equal to the Market Price on the date of any purported Transfer
that resulted in the Excess Preferred Securities, less the amount of any
Distributions received by the Purported Record Transferee
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and not repaid or offset against future Distributions pursuant to Section
8.3(b), with any remainder of such Transferee's ratable portion of the Trust's
assets subject to ratable allocation among the Holders of Securities ranking
junior to such Excess Preferred Securities as to the payment of Distributions
and upon liquidation dissolution, winding-up or termination of the Trust as an
asset of the Trust.
(d) Voting Rights.
Subject to Delaware law, effective as of the date that Preferred
Securities are exchanged for Excess Preferred Securities pursuant to Section
8.2(c), the holders of Preferred Securities that have been exchanged for Excess
Preferred Securities shall not be entitled to vote such Preferred Securities on
any matter, and, if such Preferred Securities have voting rights, all votes cast
with respect to securities of Excess Preferred Securities into which such
Preferred Securities have been exchanged shall be voted in accordance with the
direction of the Charitable Trustee of the Charitable Trust acting for the
benefit of the Charitable Beneficiary. The Charitable Trustee shall vote the
securities of Excess Preferred Securities for the exclusive benefit of the
Charitable Beneficiary.
(e) Restrictions on Transfer.
(i) Excess Preferred Securities shall not be transferable. The
Purported Record Transferee may freely designate a Person as beneficiary
of an interest in the Charitable Trust (representing the number of shares
of Excess Preferred Securities held by the Charitable Trust attributable
to a purported Transfer that resulted in the Excess Preferred Securities),
if (A) the shares of Excess Preferred Securities held in the Charitable
Trust would not be Excess Preferred Securities in the hands of such Person
and (B) the Purported Beneficial Transferee does not receive a price from
such Person that reflects a price per security for such Excess Preferred
Securities that exceeds the lesser of (1) the price per security such
Purported Beneficial Transferee paid for the Preferred Securities in the
purported Transfer that resulted in the Excess Preferred Securities, or if
the Purported Beneficial Transferee did not give value for such Excess
Preferred Securities (through a gift, devise or other transaction), a
price per security equal to the Market Price on the date of the purported
Transfer that resulted in the Excess Preferred Securities and (2) the
price per security of the Preferred Securities in the transfer described
in the following sentence. Upon the transfer of an interest in the
Charitable Trust, the corresponding Excess Preferred Securities in the
Charitable Trust shall be automatically exchanged for an equal number of
securities of Preferred Securities of the applicable series of Preferred
Securities and such Preferred Securities shall be transferred of record to
the transferee of the interest in the Charitable Trust if such Preferred
Securities would not be Excess Preferred Securities in the hands of such
transferee. In the event of such transfer, the beneficial interest of the
Charitable Beneficiary in the Excess Preferred
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Securities will terminate. Prior to any transfer of any interest in the
Charitable Trust, the Purported Record Transferee must give not less than
five business days prior written notice to the Trust of the intended
transfer and the Trust must have waived in writing its purchase rights
under Section 8.3(f).
(ii) Notwithstanding the foregoing, if a Purported Beneficial
Transferee receives a price for its interest in the shares of Preferred
Securities that were exchanged for Excess Preferred Securities that
exceeds the amounts allowable under Section 8.3(e)(i), such Purported
Beneficial Transferee shall, prior to the exchange of the Excess Preferred
Securities for Preferred Securities, pay, or cause the Person designated
pursuant to Section 8.3(e)(i) to pay, such excess to the Charitable
Trustee to be held for the exclusive benefit of the Charitable
Beneficiary.
(iii) If any of the transfer restrictions set forth in this Section
8.3(e) or any application thereof is determined in a final and
nonappealable judgment to be void, invalid or unenforceable by any court
having jurisdiction over the issue, the Purported Record Transferee may be
deemed, at the option of a majority of the Regular Trustees, to have acted
as the agent of the Trust in acquiring the excess Preferred Securities as
to which such restrictions would, by their terms, apply, and to hold such
Excess Preferred Securities on behalf of the Trust.
(f) Purchase Right in Excess Preferred Securities.
Excess Preferred Securities shall be deemed to have been offered for sale
to the Trust, or its designee (as specified by a majority of the Regular
Trustees), at a price per security equal to the lesser of (i) the price per
security in the transaction that created such Excess Preferred Securities (or,
in the case of a devise or gift, the Market Price at the time of such devise or
gift) and (ii) the Market Price on the date the Trust, or its designee, accepts
such offer. The Trust (or its designee) shall have the right to accept such
offer for a period of ninety days after the later of (i) the date of the
Transfer which resulted in such Excess Preferred Securities and (ii) the date a
majority of the Regular Trustees determines in good faith that a Transfer
resulting in Excess Preferred Securities has occurred. A majority of the Regular
Trustees may appoint a special trustee of the Charitable Trust established under
Section 8.3(a) for the purpose of consummating the purchase of Excess Preferred
Securities by the Trust (or its designee).
SECTION 8.4 Settlement.
Nothing in this Article VIII shall be interpreted to preclude the
settlement of any transaction entered into through facilities of any stock
exchange or interdealer quotation system.
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SECTION 8.5 Remedies Not Limited.
Nothing contained in this Article VIII shall limit the authority of the
Regular Trustees to take such other action as they deem necessary or advisable
(subject to the provisions of Section 8.4), (i) to protect the Trust and the
interests of the holders of its Capital Securities in the preservation of the
Trust's status as a REIT, and (ii) to ensure compliance with the applicable
Ownership Limit
SECTION 8.6 Ambiguity.
In the case of an ambiguity in the application of any of the provisions of
this Article VIII, including with respect to any of the related definitions set
forth in Article I, a majority of the Regular Trustees shall have the power to
determine the application of the provisions of this Article VIII with respect to
any situation based on their reasonable belief, understanding or knowledge of
the circumstances.
SECTION 8.7 Severability.
If any provision of this Article VIII or any application of any such
provision is determined in a final and unappealable judgment to be void, invalid
or unenforceable by any Federal or state court having jurisdiction over the
issues, the validity and enforceability of the remaining provisions shall not be
affected and other applications of such provision shall be affected only to the
extent necessary to comply with the determination of such court.
SECTION 8.8 Regular Trustees Discretion.
Anything in this Article VIII to the contrary notwithstanding, a majority
of the Regular Trustees shall be entitled to take or omit to take such actions
as they in their discretion shall determine to be advisable in order that the
Trust maintain its status as and continue to qualify as a REIT, including, but
not limited to, reducing the applicable Ownership Limit, in the event of a
change in law.
SECTION 8.9 Transfer of Certificates.
The Regular Trustees shall provide for the registration of Certificates
and of transfers of Certificates, which will be effected without charge but only
upon payment (with such indemnity as the Regular Trustees may require) in
respect of any tax or other government charges which may be imposed in relation
to it. Upon surrender for registration of transfer of any Certificate, the
Regular Trustees shall cause one or more new Certificates to be issued in the
name of the designated transferee or transferees. Every Certificate surrendered
for registration of transfer shall be accompanied by a written instrument of
transfer in form satisfactory to the Regular Trustees duly executed by the
Holder or such
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Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer shall be canceled by the Regular Trustees. A transferee
of a Certificate shall be entitled to the rights and subject to the obligations
of a Holder hereunder upon the receipt by such transferee of a Certificate. By
acceptance of a Certificate, each transferee shall be deemed to have agreed to
be bound by this Declaration.
SECTION 8.10 Deemed Security Holders.
The Trustees may treat the Person in whose name any Certificate shall be
registered on the books and records of the Trust as the sole Holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and payments on redemption and liquidation of the
Trust and for all other purposes whatsoever and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such Certificate or
in the Securities represented by such Certificate on the part of any Person,
whether or not the Trustees shall have actual or other notice thereof.
SECTION 8.11 Book Entry Interests.
Unless otherwise specified in the terms of any series of the Preferred
Securities, Preferred Securities Certificates will be issued in the form of one
or more, fully registered, global Preferred Security Certificates (each a
"Global Certificate"), to be delivered to DTC, the initial Clearing Agency, by,
or on behalf of, the Trust. Such Global Certificates shall initially be
registered on the books and records of the Trust in the name of Cede & Co., the
nominee of DTC, and no Preferred Security Indirect Owner will receive a
definitive Preferred Security Certificate representing such Preferred Security
Indirect Owner's interests in such Global Certificates, except as provided in
Section 8.14. Unless and until definitive, fully registered Preferred Security
Certificates (the "Definitive Preferred Security Certificates") with respect to
a series of Preferred Securities have been issued to the Preferred Security
Indirect Owners pursuant to Section 8.14:
(i) the provisions of this Section 8.11 shall be in full force and
effect;
(ii) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the
payment of Distributions on the Global Certificates and payments on
redemption or liquidation of the Trust and receiving approvals, votes or
consents hereunder) as the Holder of such series of such Preferred
Securities and the sole Holder of the Global Certificates and, except as
set forth herein or in Rule 3a-7 with respect to the Property Trustee,
shall have no obligation to the Preferred Security Indirect Owners;
(iii) to the extent that the provisions of this Section 8.11
conflict with any other provisions of this Declaration, the provisions of
this Section
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8.11 shall control; provided that this clause (iii) shall in no event
limit or restrict the provisions of Sections 8.2 through 8.8 hereof which
shall in all events be controlling;
(iv) the rights of the Preferred Security Indirect Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security Indirect
Owners and the Clearing Agency and/or the Clearing Agency Participants.
DTC will make book entry transfers among the Clearing Agency Participants
and receive and transmit payments of Distributions on, and payments or
redemption of, the Global Certificates and in connection with the
liquidation of the Trust, to such Clearing Agency Participants.
SECTION 8.12 Notices to Holders of Certificates.
Whenever a notice or other communication to the Holders of Preferred
Securities is required to be given under this Declaration, unless and until
Definitive Preferred Security Certificates with respect to a series of Preferred
Securities shall have been issued pursuant to Section 8.14, the relevant
Trustees shall give all such notices and communications, specified herein to be
given to Preferred Securities Holders of such series of Preferred Securities, to
the Clearing Agency and, with respect to any Preferred Security Certificate
registered in the name of a Clearing Agency or the nominee of a Clearing Agency,
the Trustees shall, except as set forth herein or in Rule 3a-7 with respect to
the Property Trustee, have no notice obligations to the Preferred Security
Indirect Owners of such series of Preferred Securities.
SECTION 8.13 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as securities
depositary with respect to any series of the Preferred Securities, the Regular
Trustees may, in their sole discretion, appoint a successor Clearing Agency with
respect to such series of Preferred Securities.
SECTION 8.14 Definitive Preferred Securities Certificates.
If (i) a Clearing Agency elects to discontinue its services as securities
depositary with respect to a particular series of Preferred Securities and a
successor Clearing Agency is not appointed within 90 days after such
discontinuance pursuant to Section 8.13 or (ii) the Regular Trustees elect after
consultation with IAC, L.P. to terminate the book entry system through the
Clearing Agency with respect to the Preferred Securities of a series, then (x)
Definitive Preferred Security Certificates shall be prepared by the Regular
Trustees on behalf of the Trust with respect to such series of Preferred
Securities and (y) upon surrender of the Global Certificates by the Clearing
Agency, accompanied by registration instructions, the Regular Trustees shall
cause definitive Preferred Security Certificates to be delivered to
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Preferred Security Indirect Owners of such series in accordance with the
instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be
liable for any delay in delivery of such instructions and each of them may
conclusively rely on and shall be protected in relying on, such instructions.
SECTION 8.15 Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificates should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and (b) there
shall be delivered to the Regular Trustees such security or indemnity as may be
required by them to keep each of them and the Trust harmless, then in the
absence of notice that such Certificate shall have been acquired by a bona fide
purchaser, a majority of Regular Trustees on behalf of the Trust shall execute
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like denomination. In connection
with the issuance of any new Certificate under this Section 8.15, the Regular
Trustees may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute conclusive evidence
of an ownership interest in the relevant Securities, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any
time.
ARTICLE IX
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 9.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Trust or any Covered Person for any loss, damage or
claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence (or, in the
case of the Property Trustee, negligence) or willful misconduct with respect to
such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses or any
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other facts pertinent to the existence and amount of assets from which
Distributions, redemption payments and payments on liquidation, dissolution or
winding up of the Trust, to Holders of Securities might properly be paid.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders
of Securities, in their capacities as Holders, shall be entitled to the same
limitation of liability that is extended to stockholders of private corporations
for profit organized under the General Corporation Law of the State of Delaware.
SECTION 9.2 Indemnification.
(a) To the fullest extent permitted by applicable law, IAC, L.P. shall
indemnify and hold harmless each Indemnified Person from and against any loss,
damage or claim incurred by such Indemnified Person by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Trust and in a manner such Indemnified Person reasonably believed to be
within the scope of authority conferred on such Indemnified Person by this
Declaration, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such Indemnified
Person by reason of gross negligence (or, in the case of the Property Trustee,
negligence) or willful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by an Indemnified Person in defending any claim,
demand, action, suit or proceeding shall, from time to time, be advanced by IAC,
L.P. prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by IAC, L.P. of an undertaking by or on behalf of the
Indemnified Person to repay such amount if it shall be determined that the
Indemnified Person is not entitled to be indemnified as authorized in Section
9.2(a).
ARTICLE X
ACCOUNTING
SECTION 10.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar year,
or such other year as is required by the Code.
SECTION 10.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular Trustees
shall keep, or cause to be kept, full books of account, records and supporting
documents, which shall reflect in reasonable detail, each transaction of the
Trust. The books of account shall be maintained on the accrual basis method of
accounting, in accordance with generally accepted
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accounting principles, consistently applied. The Trust shall use the accrual
basis method of accounting for income tax purposes. The books and records of the
Trust, together with a copy of this Declaration and a certified copy of the
Certificate of Trust, or any amendment thereto, shall at all times be maintained
at the principal office of the Trust and shall be open for inspection for any
examination by any Holder or its duly authorized representative for any purpose
reasonably related to its interest in the Trust during normal business hours.
(b) The Regular Trustees shall, as soon as available after the end of
each Fiscal Year of the Trust, cause to be prepared and mailed to each Holder of
Securities unaudited financial statements of the Trust for such Fiscal Year,
prepared in accordance with generally accepted accounting principles; provided
that if the Trust is required to comply with the periodic reporting requirements
of Sections 13(a) or 15(d) of the Exchange Act, such financial statements for
such Fiscal Year shall be examined and reported on by a firm of independent
certified public accountants selected by the Regular Trustees (which firm may be
the firm used by IAC, L.P.).
(c) The Regular Trustees shall cause to be prepared and mailed to each
Holder of Securities, an annual United States federal income tax information
statement, on such form as is required by the Code, containing such information
with regard to the Securities held by each Holder as is required by the Code and
the Treasury Regulations, and any other information required to be filed by the
Regular Trustees on behalf of the Trust with any taxing authority.
Notwithstanding any right under the Code to deliver any such statement at a
later date, the Regular Trustees shall endeavor to deliver all such statements
within 30 days after the end of each Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be prepared and filed with the
appropriate taxing authority, an annual United States federal income tax return,
on such form as is required by the Code, and any other annual income tax returns
required to be filed by the Regular Trustees on behalf of the Trust with any
state or local taxing authority, such returns to be filed as soon as practicable
after the end of each Fiscal Year of the Trust.
SECTION 10.3 Banking.
The Trust shall maintain one or more bank accounts in the name and for the
sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Preferred L.P. Units held by the Property Trustee shall be made
directly to the Property Account and no other funds from the Trust shall be
deposited in the Property Account. The sole signatories for such accounts shall
be designated by the Regular Trustees; provided, however, that the Property
Trustee shall designate the sole signatories for the Property Account.
SECTION 10.4 Withholding.
The Trust and the Trustees shall comply with all withholding requirements
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under United States federal, state and local law. The Trust shall request, and
the Holders shall provide to the Trust, such forms or certificates as are
necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Trust shall file required forms with applicable
jurisdictions and, unless an exemption from withholding is properly established
by a Holder, shall remit amounts withheld with respect to the Holder to
applicable jurisdictions. To the extent that the Trust is required to withhold
and pay over any amounts to any authority with respect to Distributions or
allocations to any Holder, such amount withheld shall be deemed to have been
paid or allocated to such Holder. In the event of any claimed overwithholding,
Holders shall be limited to an action against the applicable jurisdiction. If
the amount to be withheld was not withheld from a Distribution, the Trust may
reduce subsequent Distributions by the amount of such withholding.
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities or as required by law or the rules of any
stock exchange or interdealer quotation system on which the Preferred Securities
of a series are listed, this Declaration may be amended by, and only by, a
written instrument executed by a majority of the Regular Trustees; provided,
however, that (i) no amendment or modification to this Declaration shall be made
unless the Regular Trustees shall have obtained (A) so long as the Trust has
elected (or reelected) REIT status for United States federal income tax purposes
and not terminated such election (or reelection) under Section 11.1(c) hereof,
either a ruling from the Internal Revenue Service or a written unqualified
opinion of nationally recognized independent tax counsel experienced in such
matters to the effect that the Trust will continue to be treated as a REIT for
purposes of United States federal income taxation and (B) a written unqualified
opinion of nationally recognized independent counsel experienced in such matters
to the effect that such amendment or modification will not cause the Trust to be
an Investment Company which is required to be registered under the Investment
Company Act; provided no such ruling or opinions shall be required in connection
with the issuance of a series of Preferred Securities or the establishment of
the terms thereof, (ii) so long as any Preferred Securities remain outstanding
if any proposed modification or amendment provides for, or the Regular Trustees
otherwise propose to effect, (A) any action that would materially and adversely
affect the powers, preferences, privileges or special rights of a series of the
Preferred Securities, whether by way of amendment to the Declaration or
otherwise, or (B) the dissolution, liquidation, winding-up or termination of the
Trust other than pursuant to the terms of the Declaration, then, subject to the
terms of any such series of Preferred Securities, the Holders of each affected
series of outstanding Preferred Securities will be entitled to vote
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as a separate class on such amendment, modification or proposal and such
amendment, modification or proposal shall not be effective with respect to such
an affected series except with the approval of at least 66-2/3% in liquidation
amount of such series of the Preferred Securities, (iii) Section 3.2 and this
Section 11.1 shall not be amended without the consent of all of the Holders of
the Securities, (iv) no amendment which adversely affects the rights, powers and
privileges of the Property Trustee shall be made without the consent of the
Property Trustee, (v) Section 3.1 shall not be amended without the consent of
IAC, Inc., (vi) Section 3.2 shall not be amended without the consent of IAC,
L.P., (vii) the rights of Holders of Common Securities under Article IV to
increase or decrease the number of, and to appoint, replace or remove, Trustees
(other than a Special Regular Trustee) shall not be amended without the consent
of each Holder of Common Securities, (viii) the rights of Holders of Preferred
Securities of a series to appoint or remove a Special Regular Trustee shall not
be amended without the consent of each Holder of Preferred Securities of a
series upon which such right has been conferred and (ix) Section 2.3 shall not
be amended without the consent of a Majority in aggregate liquidation amount of
each series of outstanding Preferred Securities.
(b) Notwithstanding Section 11.1(a), the provisions set forth in
Sections 8.2(a) through (g), 8.3, 8.5 and 8.6 and this Section 11.1(b) may not
be amended in any respect and no other provision may be adopted, amended or
repealed which would have the effect of modifying or permitting the
circumvention of the provisions set forth in Sections 8.2(a) through (g), 8.3,
8.5 and 8.6 and this Section 11.1(b) unless such action is approved by the
affirmative vote of the Holders of not less than 66-2/3% of the outstanding
Common Securities.
(c) Notwithstanding anything contained in this Declaration to the
contrary, by the affirmative vote of the Holders of not less than 66-2/3% of the
Common Securities and a majority of the Regular Trustees, the Trust's status as
a REIT for Federal income tax purposes may be terminated.
(d) Notwithstanding Section 11.1(a)(ii) and (iii), this Declaration may
be amended without the consent of the Holders of the Securities to (i) cure any
ambiguity, (ii) correct or supplement any provision in this Declaration that may
be defective or inconsistent with any other provision of this Declaration, (iii)
to add to the covenants, restrictions or obligations of IAC, Inc. or IAC, L.P.,
and (iv) to conform to any changes in Rule 3a-7 or any change in interpretation
or application of Rule 3a-7 by the Commission, which amendment does not
materially and adversely affect the rights, preferences or privileges of the
Holders.
SECTION 11.2 Meetings of the Holders of Securities; Action by Written Consent.
(a) Meetings of the Holders of Preferred Securities and/or Common
Securities may be called at any time by the Regular Trustees (or as provided in
the terms of the Securities) to consider and act on any matter on which Holders
of such class of Securities (or
50
<PAGE> 58
any series of Preferred Securities) are entitled to act under the terms of this
Declaration, the terms of the Securities or the rules of any stock exchange or
interdealer quotation system on which the Preferred Securities of a series are
listed or admitted for trading. The Regular Trustees shall call a meeting of
Holders of Preferred Securities (or of a series of Preferred Securities) or
Common Securities, if directed to do so by Holders of at least 10% in
liquidation amount of such class or series of Securities. Such direction shall
be given by delivering to the Regular Trustees one or more calls in a writing
stating that the signing Holders of Securities wish to call a meeting and
indicating the general or specific purpose for which the meeting is to be
called. Any Holders of Securities calling a meeting shall specify in writing the
Certificates held by the Holders of Securities exercising the right to call a
meeting and only those specified Certificates shall be counted for purposes of
determining whether the required percentage set forth in the second sentence of
this paragraph has been met.
(b) The following provision shall apply to meetings of Holders of
Securities:
(i) Notice of any such meeting shall be given by mail to all the
Holders of the applicable class or series of Securities having a right to
vote thereat not less than 7 days nor more than 60 days prior to the date
of such meeting. Whenever a vote, consent or approval of the Holders of a
class or series of Securities is permitted or required under this
Declaration, pursuant to a Certificate of Terms of a series of Preferred
Securities, or the rules of any stock exchange or interdealer quotation
system on which the Preferred Securities of a series are listed or
admitted for trading, such vote, consent or approval may be given at a
meeting of the Holders of such Securities. Any action that may be taken at
a meeting of the Holders of such Securities may be taken without a meeting
if a consent in writing setting forth the action so taken is signed by
Holders of such class or series of Securities owning not less than the
minimum aggregate liquidation amount of such class or series of Securities
that would be necessary to authorize or take such action at a meeting at
which all Holders of such class or series of Securities having a right to
vote thereon were present and voting. Prompt notice of the taking of
action without a meeting shall be given to the Holders of such class or
series of Securities entitled to vote who have not consented in writing.
The Regular Trustees may specify that any written ballot submitted to the
Holders of Securities for the purpose of taking any action without a
meeting shall be returned to the Trust within the time specified by the
Regular Trustees.
(ii) Each Holder of a Security may authorize any Person to act for
it by proxy on all matters in which a Holder of a Security is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Holder of the
Security executing it. Except as
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<PAGE> 59
otherwise provided in this Declaration, all matters relating to the
giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation
and the Holders of the Securities were stockholders of a Delaware
corporation.
(iii) Each meeting of the Holders of a class or series of Securities
shall be conducted by the Regular Trustees or by such other Person that
the Regular Trustees may designate.
(iv) Unless otherwise provided in the Business Trust Act, this
Declaration or the rules of any stock exchange or interdealer quotation
system on which the Preferred Securities of a series are then listed or
admitted for trading, the Regular Trustees, in their sole discretion,
shall establish all other provisions relating to meetings of Holders of
Securities, including notice of the time, place or purpose of any meeting
at which any matter is to be voted on by any Holders of Securities, waiver
of any such notice, action by consent without a meeting, the establishment
of a record date, quorum requirements, voting in person or by proxy or any
other matter with respect to the exercise of any such right to vote.
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 12.1 Representations and Warranties of Property Trustee and Delaware
Trustee.
(a) The Trustee which acts as initial Property Trustee represents and
warrants to the Trust, IAC, Inc. and IAC, L.P. at the date of this Declaration,
and each Successor Property Trustee represents and warrants to the Trust, IAC,
Inc. and IAC, L.P. at the time of the Successor Property Trustee's acceptance of
its appointment as Property Trustee that:
(i) The Property Trustee is a banking corporation with trust
powers, duly organized, validly existing and in good standing under the
laws of the State of its incorporation, with trust power and authority to
execute and deliver, and to carry out and perform its obligations under
the terms of, this Declaration.
(ii) The execution, delivery and performance by the Property
Trustee of this Declaration has been duly authorized by all necessary
corporate action on the part of the Property Trustee. The Declaration has
been duly executed and delivered by the Property Trustee, and constitutes
a legal, valid
52
<PAGE> 60
and binding obligation of the Property Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(iii) The execution, delivery and performance of this Declaration by
the Property Trustee does not conflict with or constitute a breach of the
Charter or By-laws of the Property Trustee.
(iv) No consent, approval or authorization of, or registration with
or notice to, any banking authority which supervises or regulates the
Property Trustee is required for the execution, delivery or performance by
the Property Trustee, of this Declaration.
(v) The Property Trustee satisfies the qualifications set forth in
Section 4.1(c).
(b) The Trustee which acts as initial Delaware Trustee represents and
warra4nts to the Trust, IAC, L.P. and IAC, Inc. at the date of this Declaration,
and each Successor Delaware Trustee represents and warrants to the Trust, IAC,
L.P. and IAC, Inc. at the time of the Successor Delaware Trustee's acceptance of
its appointment as Delaware Trustee, that it satisfies the qualifications set
forth in Section 4.1(a)(3).
ARTICLE XIII
MERGER
SECTION 13.1 No Merger, Consolidation or Amalgamation of Trust.
The Trust shall not consolidate, amalgamate, merge with or into, or
convey, transfer or lease its assets substantially as an entirety to, any Person
except as provided in Section 13.2.
SECTION 13.2 Merger, Consolidation or Amalgamation of Trust.
The Trust may, at the request of the Holders of the Common Securities and
with the consent of the Regular Trustees, but without the consent of the Holders
of the Preferred Securities, the Property Trustee or the Delaware Trustee,
consolidate, amalgamate, merge with or into, any trust, partnership, corporation
or other entity organized under the laws of any State of the United States or
the District of Columbia; provided, that (i) if the Trust is not the survivor,
such successor entity (x) either expressly assumes all of the
53
<PAGE> 61
obligations of the Trust under the Securities or (y) substitutes for the
Preferred Securities of each series outstanding other securities having
substantially the same terms as the Preferred Securities (the "Successor
Securities"), so long as each series of Successor Securities rank the same as
the Preferred Securities rank with respect to Distributions and payments upon
liquidation, dissolution, winding-up or termination, (ii) IAC, Inc. and IAC,
L.P. expressly acknowledge a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the Holder of the Preferred
L.P. Units but only if in the opinion of nationally recognized independent
counsel to the Trust experienced in matters under the Investment Company Act of
1940, such action is necessary so that the successor entity will not be required
to register as an "investment company" under the Investment Company Act, (iii)
the Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any stock
exchange, interdealer quotation system or with another organization on which the
Preferred Securities are then listed or quoted, (iv) such merger, consolidation
or amalgamation does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any "nationally recognized statistical rating
organization" as defined in Rule 436(g)(2) under the Securities Act or (v) such
merger, consolidation, amalgamation does not adversely affect the powers,
special rights, preferences and privileges of the Holders of the Preferred
Securities (including any Successor Securities) in any material respect. Neither
the consolidation nor merger of the Trust with or into any trust, corporation or
other entity (or of any trust, corporation or other entity with or into the
Trust) nor the sale, lease or conveyance of all or substantially all of the
property of the Trust in conformity with the terms of this Section 13.2 shall be
deemed to constitute a liquidation, dissolution, winding-up or termination of
the Trust.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Regular
Trustees on behalf of the Trust may give notice of to the Holders of the
Securities):
54
<PAGE> 62
IAC Capital Trust
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive
Suite 300
Newport Beach, California 92660
Attention: James E. Mead
Trustee
Facsimile No: (714) 720-5532
(b) if given to the Property Trustee, at the mailing address of the
Property Trustee set forth below (or such other address as the Property Trustee
may give notice of to the Holders of the Securities):
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee
Administration
Facsimile No: (212) 815-5915
(c) if given to the Delaware Trustee, at the mailing address of the
Delaware Trustee set forth below (or such other address as the Delaware Trustee
may give notice of to the Holders of the Securities):
The Bank of New York (Delaware)
c/o The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee
Administration
Facsimile No: (212) 815-5915
(d) if given to the Holders of the Common Securities, IAC, Inc. or IAC,
L.P., at the mailing address of IAC, Inc. set forth below (or such other address
as the Holders of the Common Securities, IAC, Inc. or IAC, L.P. may give notice
to the Trust):
Irvine Apartment Communities, Inc.
550 Newport Center Drive
Suite 300
Newport Beach, California 92660
Attention: Corporate Secretary
Facsimile No: (714) 750-5532
(e) if given to any other Holder, at the address set forth on the books
and
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<PAGE> 63
records of the Trust.
A copy of any notice to the Property Trustee or the Delaware Trustee shall
also be sent to the Trust. All notices shall be deemed to have been given, when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 14.2 Undertaking for Costs.
All parties to this Declaration agree, and each Holder of any Securities
by his or her acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit against the Property Trustee for any
action taken or omitted by it as Property Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 14.2 shall not apply to any suit instituted
by the Property Trustee, to any suit instituted by any Holder of Preferred
Securities, or group of Holders of Preferred Securities, holding more than 10%
in aggregate liquidation amount of the outstanding Preferred Securities of any
series.
SECTION 14.3 Governing Law.
This Declaration and the rights of the parties hereunder shall be governed
by and interpreted in accordance with the laws of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to principles
of conflict of laws.
SECTION 14.4 Headings.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 14.5 Partial Enforceability.
If any provision of this Declaration, or the application of such provision
to any Person or circumstance, is determined in a final and nonappealable
judgment to be void, invalid or unenforceable by any Federal or state court
having jurisdiction over the issues, the validity and enforceability of the
remainder of this Declaration, or the application of such provision to Persons
or circumstances other than those to which it is held void, invalid or
unenforceable, shall not be affected thereby
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<PAGE> 64
SECTION 14.6 Counterparts.
This Declaration may contain more than one counterpart of the signature
pages and this Declaration may be executed by the affixing of the signature of
IAC, Inc., IAC, L.P. and each of the Trustees to one of such counterpart
signature pages. All of such counterpart signature pages shall be read as though
one, and they shall have the same force and effect as though all of the signers
had signed a single signature page.
SECTION 14.7 Intention of the Parties.
It is the intention of the parties hereto that the Trust be treated as a
real estate investment trust for United States federal income tax purposes. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 14.8 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by IAC, Inc.,
IAC, L.P. and the Trustees shall bind and inure to the benefit of their
respective successors and assigns, whether so expressed.
SECTION 14.9 Personal Liability.
The Holders of the Securities, in their capacities as such, shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
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<PAGE> 65
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
IRVINE APARTMENT COMMUNITIES, INC.,
as one of the sponsors of the Trust
By: /s/ JAMES E. MEAD
-------------------------------------------
Name: James E. Mead
Title: Senior Vice President, Chief
Financial Officer and Secretary
IRVINE APARTMENT COMMUNITIES, L.P.
as one of the sponsors of the Trust
By: Irvine Apartment Communities, Inc.,
its general partner
By: /s/ JAMES E. MEAD
-------------------------------------------
Name: James E. Mead
Title: Senior Vice President, Chief
Financial Officer and Secretary
JAMES E. MEAD
By: /s/ JAMES E. MEAD
- ------------------------------------------------
James E. Mead,
not in his individual capacity,
but solely as Trustee
<PAGE> 66
THE BANK OF NEW YORK,
not in its individual capacity,
but solely as Trustee
By: /s/ VAN K. BROWN
-------------------------------------
Name: VAN K. BROWN
Title: Assistant Vice President
THE BANK OF NEW YORK (DELAWARE),
not in its individual capacity,
but solely as Trustee
By: /s/ WALTER N. GITLIN
-------------------------------------
Name: WALTER N. GITLIN
Title: Authorized Signatory
<PAGE> 67
EXHIBIT A
CERTIFICATE OF TRUST OF IAC CAPITAL TRUST
This CERTIFICATE OF TRUST of IAC Capital Trust (the "Trust"), dated as of
October 31, 1997, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. Code Section 3801 et seq.).
1. Name. The name of the business trust being formed hereby is IAC
Capital Trust.
2. Delaware Trustee. The name and business address of the trustee of
the Trust with a principal place of business in the State of Delaware is The
Bank of New York (Delaware), a Delaware banking corporation, White Clay Center,
Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective as of
its filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust,
have executed this Certificate of Trust as of the date first above written.
The Bank of New York (Delaware),
as Trustee
By: /s/Walter N. Gitlin
------------------------------------
Name: Walter N. Gitlin
Title: Authorized Signatory
The Bank of New York,
as Trustee
By: /s/Van K. Brown
------------------------------------
Name: Van K. Brown
Title: Assistant Vice President
/s/James E. Mead
------------------------------------
James E. Mead,
as Trustee
A-1
<PAGE> 68
EXHIBIT B
INITIAL PURCHASERS OF COMMON SECURITIES
<TABLE>
<CAPTION>
Name Number of Common Securities
---- ---------------------------
<S> <C>
Irvine Apartment Communities, Inc. 90
William H. McFarland 29
Richard E. Lamprecht 27
James E. Mead 27
William W. Thompson 27
---
Total: 200
</TABLE>
B-1
<PAGE> 69
ANNEX I
Certificate Number Number of Common Securities
C-__ [____________]
Certificate Evidencing Common Securities
of
IAC Capital Trust
IAC Capital Trust, a statutory business trust formed under the laws of the
State of Delaware (the "Trust"), hereby certifies that (the "Holder") is the
registered owner of ______________ (__________) common securities of the Trust
representing common undivided beneficial interests in the assets of the Trust
(the "Common Securities"). The Common Securities are transferable on the books
and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer and
satisfaction of the other conditions set forth in the Declaration (as defined
below). The designations, rights, privileges, restrictions, preferences and
other terms and provisions of the Common Securities are set forth in, and this
certificate and the Common Securities represented hereby are issued and shall in
all respects be subject to the terms and provisions of, the Amended and Restated
Declaration of Trust of the Trust dated as of January 20, 1998, as the same may
be amended, modified or restated from time to time (the "Declaration"). The
Common Securities and the Preferred Securities (as defined in the Declaration)
issued by the Trust pursuant to the Declaration represent, subject to the
priority and payment terms of such class or series, undivided beneficial
interests in the assets of the Trust, including the Preferred L.P. Units (as
defined in the Declaration) issued by Irvine Apartment Communities, L.P., a
Delaware limited partnership. The Trust will furnish a copy of the Declaration
to the Holder without charge upon written request to the Trust at its principal
place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
I-1
<PAGE> 70
IN WITNESS WHEREOF, the Trustees of the Trust have executed this
certificate this ____ day of __________, _____.
IAC CAPITAL TRUST
By _________________________________
James E. Mead, not in his
individual capacity, but solely as
trustee
I-2
<PAGE> 71
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
(Insert assignee's social security or tax identification number)
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
_______________________________________________________________
_______________________________________________________________
_____________________________________________________ agent to transfer this
Common Security Certificate on the books of the Trust. The agent may substitute
another to act for him or her.
Date: ________________________
Signature: _________________________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
I-3
<PAGE> 72
ANNEX II
[IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - THIS
PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE DECLARATION
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST
COMPANY ("DTC") OR A NOMINEE OF DTC. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR
PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO
TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED
SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR
ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (55 WATER STREET, NEW YORK) TO THE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.,
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL SINCE THE REGISTERED OWNERS HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
THE PREFERRED SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER. NO PERSON MAY BENEFICIALLY OWN SECURITIES OF THIS
SERIES OF PREFERRED SECURITIES IN EXCESS OF THE OWNERSHIP LIMIT APPLICABLE TO
THIS SERIES OF PREFERRED SECURITIES, WITH CERTAIN FURTHER RESTRICTIONS AND
EXCEPTIONS SET FORTH IN THE AMENDED AND RESTATED DECLARATION OF TRUST OF IAC
CAPITAL TRUST DATED AS OF JANUARY 20, 1998, AS AMENDED FROM TIME TO TIME
("DECLARATION"). ANY PERSON WHO ATTEMPTS TO BENEFICIALLY OWN SECURITIES OF THIS
SERIES OF PREFERRED SECURITIES IN EXCESS OF THE APPLICABLE LIMITATION MUST
IMMEDIATELY NOTIFY THE TRUST. ALL CAPITALIZED TERMS IN THIS LEGEND SHALL HAVE
THE MEANINGS ASCRIBED TO SUCH TERMS IN THE DECLARATION, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON
TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH HOLDER OF PREFERRED SECURITIES OF
THIS SERIES WHO REQUESTS SUCH A COPY.
II-1
<PAGE> 73
IF THE RESTRICTIONS ON TRANSFER ARE VIOLATED, THE TRANSFER WILL BE VOID IN
ACCORDANCE WITH THE DECLARATION AND THE PREFERRED SECURITIES REPRESENTED HEREBY
WILL BE AUTOMATICALLY EXCHANGED FOR EXCESS PREFERRED SECURITIES WHICH WILL BE
HELD IN TRUST IN ACCORDANCE WITH THE DECLARATION.
Certificate Number Number of Preferred Securities
A- [ ]
CUSIP NO. ______
Certificate Evidencing Series [ ] Preferred Securities
of
IAC Capital Trust
___% Series [ ] REIT Trust Originated Preferred Securities
(liquidation amount $[ ] per Preferred Security)
IAC Capital Trust, a statutory business trust created under the laws of
the State of Delaware (the "Trust"), hereby certifies that _________ (the
"Holder") is the registered owner of _____ (______) preferred securities of the
Trust representing preferred undivided beneficial interests in the assets of the
Trust designated the ___% Series [ ] REIT Trust Originated Preferred Securities
(liquidation amount $[ ] per Preferred Security) (the "Series [ ] Preferred
Securities"). The Series [ ] Preferred Securities are transferable, subject to
the transfer restrictions set forth in the Declaration referred to below, on the
books and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer. The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Series [ ] Preferred Securities are set forth in, and this
certificate and the Series [ ] Preferred Securities represented hereby are
issued and shall in all respects be subject to the terms and provisions of, the
Amended and Restated Declaration of Trust of the Trust dated as of January 20,
1998, as the same may be amended, modified or restated from time to time (the
"Declaration") including the designation of the terms of Series [ ] Preferred
Securities as set forth in the Certificate of Terms (as defined in the
Declaration) of the Series [ ] Preferred Securities. The Series [ ] Preferred
Securities, the Common Securities and any other series of Preferred Securities
(as defined in the Declaration) issued by the Trust pursuant to the Declaration
represent, subject to the priority and payment terms of each such class or
series, undivided beneficial interests in the assets of the Trust, including the
Preferred L.P. Units (as defined in the Declaration) issued by Irvine Apartment
Communities, L.P., a Delaware limited partnership. The Trust
II-2
<PAGE> 74
will furnish a copy of the Declaration to the Holder without charge upon written
request to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Declaration
and the Certificate of Terms for the Series [ ] Preferred Securities and is
entitled to the benefits thereunder.
IN WITNESS WHEREOF, the Trustees of the Trust have executed this
certificate this ___ day of ____________, ____.
IAC CAPITAL TRUST
By: _________________________________,
James E. Mead, not in his
individual capacity but solely
as trustee
Dated:
Countersigned and Registered:
The Bank of New York,
Transfer Agent and Registrar
By:___________________________
Authorized Signature
II-3
<PAGE> 75
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
____________________________________________________________
____________________________________________________________
____________________________________________________________
(Insert assignee's social security or tax identification number)
____________________________________________________________
____________________________________________________________
____________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
____________________________________________________________
____________________________________________________________
____________________________________________________________
agent to transfer this Preferred Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: _________________________
Signature: ____________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature Guaranty: _________________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program"as may be determined by the registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
II-4
<PAGE> 1
EXHIBIT 4.5
CERTIFICATE OF TERMS OF
SERIES A PREFERRED SECURITIES
Pursuant to Section 6.1(d) of the Amended and Restated
Declaration of Trust of IAC Capital Trust dated as of January 20, 1998 (as
amended from time to time, the "Declaration"), the designations, rights,
privileges, restrictions, preferences and other terms and provisions of a series
of Preferred Securities of IAC Capital Trust (the "Trust") are set forth below
(each capitalized term used but not defined herein having the meaning set forth
in the Declaration):
1. DESIGNATION AND NUMBER. Preferred Securities of the Trust with
an aggregate liquidation amount in the assets of the Trust of One Hundred
Seventy-two Million Five Hundred Thousand Dollars ($172,500,000) (including up
to Twenty-two Million Five Hundred Thousand Dollars ($22,500,000) issuable upon
exercise of the overallotment option set forth in the Purchase Agreement dated
as of January 14, 1998 among the Trust, Irvine Apartment Communities, Inc.
("IAC, Inc."), Irvine Apartment Communities, L.P. ("IAC, L.P.") and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs
& Co., J.P. Morgan Securities, Inc., Morgan Stanley & Co. Incorporated and Smith
Barney Inc., as representatives of the several underwriters named therein (the
"Purchase Agreement")) and a liquidation amount in the assets of the Trust of
$25 per Preferred Security, are hereby designated as "8.25% Series A REIT Trust
Originated Preferred Securities" (the "Series A Preferred Securities"). The
Series A Preferred Security Certificates evidencing the Series A Preferred
Securities shall be substantially in the form attached as Annex II to the
Declaration, with such changes and additions thereto or deletions therefrom as
may be required by ordinary usage, custom or practice or to conform to the rules
of any stock exchange or interdealer quotation system on which the Series A
Preferred Securities are listed. In connection with the issuance and sale of the
Series A Preferred Securities, the Trust will purchase as trust assets Series A
Preferred Limited Partner Interests (the "Series A Preferred L.P. Units") of
IAC, L.P. having an aggregate stated amount payable on liquidation of IAC, L.P.
equal to the aggregate liquidation amount of the Series A Preferred Securities
so issued and having a distribution rate at least equal to the annual
<PAGE> 2
distribution rate on the Series A Preferred Securities and having economic terms
substantially similar to the Series A Preferred Securities.
2. DISTRIBUTIONS. (a) Subject to the rights of Holders of any
series of Preferred Securities which the Trust may issue in the future which
rank on a parity with the Series A Preferred Securities in respect of
distributions, the Holders of outstanding Series A Preferred Securities will be
entitled to receive, when, as and if declared by the Regular Trustees out of
funds legally available for the payment of distributions, cumulative
preferential cash distributions at the rate per annum of 8.25% (the
"Distribution Rate") of the stated liquidation amount of $25 per Series A
Preferred Security (the "Stated Value"). Distributions on the Series A Preferred
Securities will be cumulative, will accrue from January 20, 1998, the original
issue date of the Series A Preferred Securities, and will be payable quarterly
in arrears on March 31, June 30, September 30 and December 31 (each a "Series A
Distribution Payment Date") of each year, commencing on March 31, 1998. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed on the basis of the actual number of days
elapsed in such a 30-day month. If any Series A Distribution Payment Date is not
a Business Day, the payment of the distribution to be made on such Series A
Distribution Payment Date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) except that if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such Series A Distribution
Payment Date. While the Series A Preferred Securities remain in book-entry only
form, the relevant record dates shall be one Business Day prior to the relevant
Series A Distribution Payment Date, and if the Series A Preferred Securities are
no longer in book-entry only form, the Regular Trustees shall have the right to
select relevant record dates, which shall be not less than 10 nor more than 50
days preceding the applicable Series A Distribution Payment Date.
(b) Distributions on the Series A Preferred Securities shall
accrue on a daily basis commencing on the date of original issuance of the
Series A Preferred Securities, will accrue whether or not the Trust has
earnings, whether or not there are funds legally available for the payment of
such distributions and whether or not such distributions are declared. Accrued
distributions will accumulate, to the extent not paid, as of the Series A
Distribution Payment Date on which they first become payable. Accumulated and
unpaid distributions will not bear interest.
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<PAGE> 3
(c) So long as any Series A Preferred Securities are outstanding,
no distribution shall be paid or declared on or with respect to the Common
Securities or any other series of outstanding Preferred Securities ranking
junior to the Series A Preferred Securities as to the payment of distributions,
nor shall any sum or sums be set aside for or applied to the purchase or
redemption of the Series A Preferred Securities or any other series of
outstanding Preferred Securities or the purchase, redemption or other
acquisition for value of any Common Securities or any Preferred Securities of a
series ranking junior to the Series A Preferred Securities as to the payment of
distributions unless, in each case, full cumulative distributions accumulated on
all Series A Preferred Securities and all other series of outstanding Preferred
Securities ranking on a parity with the Series A Preferred Securities as to the
payment of distributions have been paid in full, provided that the foregoing
will not prohibit distributions payable solely in Common Securities or Preferred
Securities of a series ranking junior to the Series A Preferred Securities as to
the payment of distributions and the purchase of Preferred Securities as
described in Section 8.2 of the Declaration. When distributions have not been
paid in full upon the Series A Preferred Securities on the applicable Series A
Distribution Payment Date (or a sum sufficient for such full payment is not set
apart therefor), all distributions declared and paid on the Series A Preferred
Securities and any other series of outstanding Preferred Securities ranking on a
parity with the Series A Preferred Securities as to the payment of distributions
shall be declared and paid so that the amount of distributions declared and paid
on the Series A Preferred Securities and such other series of Preferred
Securities shall in all cases bear to each other the same ratio that the
respective distribution rights of the Series A Preferred Securities and such
other series of Preferred Securities (which shall not include any accumulation
in respect of unpaid distributions for prior distribution periods if such other
series of Preferred Securities do not have cumulative distribution rights) bear
to each other.
(d) Holders of Series A Preferred Securities shall not be
entitled to any distributions whether payable in cash, property, or otherwise in
excess of the full cumulative distributions as herein provided. Distributions
with respect to the dissolution, liquidation, winding-up or termination of the
Trust shall be governed by Paragraph 4 hereof.
3. RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SERIES A PREFERRED
SECURITIES. The Ownership Limit applicable to the Series A Preferred Securities
shall be 9.8%.
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<PAGE> 4
4. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. Subject to the
rights of the Holders of any other series of Preferred Securities which the
Trust may issue in the future which rank on a parity with the Series A Preferred
Securities upon any voluntary or involuntary dissolution, liquidation,
winding-up or termination of the Trust, the Holders of the Series A Preferred
Securities will be entitled to receive upon any such dissolution, liquidation,
winding-up or termination of the Trust out of the assets of the Trust legally
available for distribution, after payment or provision for payment of debts and
other liabilities of the Trust (to the extent not satisfied by IAC, L.P. as
provided in the Declaration), an amount per Series A Preferred Security equal to
the Stated Value, plus accrued and unpaid distributions thereon to the date of
payment (such amount being the "Liquidation Distribution") and no more. If, upon
any such liquidation, dissolution, winding-up or termination, there are
insufficient assets to permit full payment to the Holders of Series A Preferred
Securities and any other series of outstanding Preferred Securities ranking on a
parity upon liquidation, dissolution, winding-up or termination of the Trust
with the Series A Preferred Securities, the Holders of Series A Preferred
Securities and such other series of Preferred Securities shall be paid ratably
in proportion to the full distributable amounts to which Holders of Series A
Preferred Securities and such other series of Preferred Securities are
respectively entitled upon liquidation, dissolution, winding-up or termination.
The full preferential amount payable to Holders of the Series A Preferred
Securities and such other series of outstanding Preferred Securities upon any
such liquidation, dissolution, winding-up or termination will be paid in full
before any distribution or payment is made to the Holders of Common Securities
or Preferred Securities of any series ranking junior to the Series A Preferred
Securities upon liquidation, dissolution, winding-up or termination of the
Trust.
5. STATED MATURITY AND REDEMPTION. (a) The Series A Preferred
Securities shall mature and the Stated Value thereof shall be due and payable on
December 31, 2092 (the "Stated Maturity Date") whether or not the term of the
Partnership is extended. On the Stated Maturity Date the Holders of Series A
Preferred Securities shall be entitled to receive, upon surrender of their
certificates for the Series A Preferred Securities, out of funds legally
available for distribution an amount in cash equal to the Stated Value per
Series A Preferred Security, plus accrued and unpaid distributions thereon to
the date of payment (the "Stated Maturity Price") and no more.
(b) Upon the repayment of a series of Preferred L.P. Units, in
whole or in part, whether at maturity, upon termination of IAC, L.P., upon
redemption or otherwise, the proceeds of such repayment will be promptly
applied to
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<PAGE> 5
redeem, upon not less than 30 nor more than 60 days' notice, at the
applicable redemption price, Preferred Securities of a series having economic
rights substantially similar to the series of Preferred L.P. Units being
redeemed or repaid, such redemption to be in an aggregate liquidation amount
equal to the aggregate stated value of the Preferred L.P. Units so repaid or
redeemed, subject to the priority and payment terms of each series of
outstanding Preferred Securities. If the Series A Preferred Securities are to be
redeemed, the redemption price (the "Series A Redemption Price") shall be $25
per Series A Preferred Security plus an amount equal to accrued and unpaid
distributions thereon to the date of redemption, payable in cash.
(c) The Trust may not redeem fewer than all the outstanding
Series A Preferred Securities unless all accrued and unpaid distributions have
been paid on all Series A Preferred Securities for all quarterly distribution
periods terminating on or prior to the date of redemption. If fewer than all the
outstanding Series A Preferred Securities are to be so redeemed, the Series A
Preferred Securities to be redeemed will be redeemed as described in Paragraph
5(e)(ii) below. If a partial redemption would result in the delisting of the
Series A Preferred Securities by any national securities exchange or interdealer
quotation system on which the Series A Preferred Securities are then listed, the
Trust may only redeem Series A Preferred Securities in whole.
(d) Except in the case of a Special Event (as defined in Exhibit
E to the Partnership Agreement), the Series A Preferred Securities may not be
redeemed prior to December 31, 2002.
(e) (i) The Regular Trustees, on behalf of the Trust, will
provide notice of any redemption of the Series A Preferred Securities to the
Holders of record thereof not less than 30 nor more than 60 days prior to the
date of redemption and in the case of a mandatory repayment of the Series A
Preferred Securities on the Stated Maturity Date will provide notice of such
repayment not less than 30 nor more than 60 days prior to the Stated Maturity
Date. Such notice shall be provided by mailing notice of such redemption or
mandatory repayment, first class postage prepaid, to each Holder of Series A
Preferred Securities to be redeemed or to all Holders in the event of a
mandatory repayment on the Stated Maturity Date, at such Holder's address as it
appears on the transfer records of the Trust. Each notice shall state, as
appropriate, the following:
(A) the redemption date or the Stated Maturity Date;
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<PAGE> 6
(B) the Series A Redemption Price or the Stated Maturity Price;
(C) the place or places where certificates for the Series A Preferred
Securities may be surrendered for payment;
(D) the number of Series A Preferred Securities to be redeemed from each
Holder;
(E) that payment of the Series A Redemption Price or the Stated Maturity
Price will be made upon presentation and surrender of such Series A Preferred
Securities; and
(F) that on or after the Stated Maturity Date or the redemption date
distributions on the Series A Preferred Securities to be redeemed or repaid will
cease to accrue.
No failure to give or defect in a notice of redemption shall affect the validity
of the proceedings for redemption except as to the Holder to which notice was
defective or not given.
(ii) In the event of any redemption of Series A Preferred
Securities in part, Series A Preferred Securities registered in the name of and
held of record by DTC (or the successor Clearing Agency) or any other nominee
will be redeemed from, and the distribution of the proceeds of such redemption
will be made to, each Clearing Agency Participant (or person on whose behalf
such nominee holds such securities) in accordance with the procedures applied by
such Clearing Agency or nominee. If the Series A Preferred Securities are no
longer in book-entry form, the provisions of Paragraph 10 hereof shall apply to
any redemption of the Series A Preferred Securities in part.
(iii) If notice (which notice will be irrevocable) has been given
to the Holders of Series A Preferred Securities as provided above, then, by
12:00 noon, New York City time, on the redemption date or the Stated Maturity
Date, as the case may be, provided that the Property Trustee has funds
sufficient to pay the Series A Redemption Price, the Property Trustee will
deposit irrevocably in trust for the benefit of the Series A Preferred
Securities being redeemed or repaid funds sufficient to pay the Series A
Redemption Price or Stated Maturity Price, as the case may be, and will give
irrevocable instructions and authority to pay such Series A Redemption Price or
Stated Maturity Price, as the case may be, to the Holders of the Series A
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<PAGE> 7
Preferred Securities entitled thereto. If notice shall have been given as
provided above and funds deposited as required, then upon the date of such
deposit, distributions will cease to accrue on the Series A Preferred Securities
called for redemption or to be repaid, as the case may be, such Series A
Preferred Securities will no longer be deemed to be outstanding and all rights
of Holders of such Series A Preferred Securities so called for redemption or to
be repaid, as the case may be, will cease, except the right of the Holders of
such Series A Preferred Securities to receive the applicable Series A Redemption
Price or Stated Maturity Price, as the case may be, but without interest
thereon. Neither the Trustees nor the Trust shall be required to register or
cause to be registered the transfer of any Series A Preferred Securities which
have been so called for redemption. If the Stated Maturity Date or any date
fixed for redemption of Series A Preferred Securities is not a Business Day,
then payment of the Series A Redemption Price or the Stated Maturity Price, as
the case may be, payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay) except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the Stated Maturity Date
or such date fixed for redemption. If payment of the Series A Redemption Price
or the Stated Maturity Price, as the case may be, in respect of the Series A
Preferred Securities is improperly withheld or refused and not paid,
distributions on such Series A Preferred Securities will continue to accrue from
the original redemption date or the Stated Maturity Date, as the case may be, to
the date of payment, in which case the actual payment date will be used for
purposes of calculating the Series A Redemption Price or the Stated Maturity
Price, as the case may be.
(iv) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws), IAC, L.P. or any of
its subsidiaries may at any time and from time to time purchase outstanding
Series A Preferred Securities by tender, in the open market or by private
agreement unless at such time, IAC, L.P. would be prohibited from purchasing or
redeeming Preferred L.P. Units with substantially similar terms to the Series A
Preferred Securities pursuant to the terms of such Preferred LP Units. In the
event that IAC, L.P. or any of its subsidiaries so purchases Series A Preferred
Securities, IAC, L.P. may deliver, or cause to be delivered, to the Property
Trustee for cancellation the Series A Preferred Securities so purchased and if
so delivered, the Property Trustee shall concurrently deliver to IAC, L.P. for
cancellation an equal number of Preferred L.P. Units with substantially similar
economic terms.
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<PAGE> 8
(f) The Series A Preferred Securities do not have the benefit of
any sinking fund.
6. VOTING RIGHTS. (a) Except as provided under Paragraph 6(b)
below and as otherwise required by law and the Declaration, the Holders of the
Series A Preferred Securities will have no voting rights.
(b) If the Trust fails to make distributions in full on the
Series A Preferred Securities for six consecutive quarterly distribution periods
(an "Appointment Event"), then the Holders of the Series A Preferred Securities
(voting separately as a class with all other series of Preferred Securities upon
which like voting rights have been conferred and are then exercisable) will be
entitled, by the vote of Holders of such Preferred Securities representing a
Majority in aggregate liquidation amount of such outstanding Preferred
Securities, to appoint, subject to Section 4.2(a)(ii)(B) of the Declaration, a
Special Regular Trustee. Any Holder of Series A Preferred Securities (other than
IAC, Inc. or IAC, L.P. or any of their affiliates) shall have the right to
nominate any Person to be appointed as Special Regular Trustee. For purposes of
determining whether the Trust has failed to pay distributions in full for six
consecutive quarterly distribution periods, distributions shall be deemed to
remain in arrears, notwithstanding any payments in respect thereof, until full
cumulative distributions have been or contemporaneously are paid with respect to
all quarterly distribution periods terminating on or prior to the date of
payment of such cumulative distributions. Not later than 30 days after such
right to appoint a Special Regular Trustee arises, the Regular Trustees ,
subject to Section 4.2(a)(ii)(B) of the Declaration, will convene a meeting for
the purpose of appointing a Special Regular Trustee. If the Regular Trustees
fail to convene such meeting within such 30-day period, the Holders of Series A
Preferred Securities and any other series of Preferred Securities upon which
like voting rights have been conferred and are then exercisable representing an
aggregate of 10% in liquidation amount of such outstanding Preferred Securities
will be entitled to convene such meeting. If, at any such meeting, Holders of
less than a Majority in aggregate liquidation amount of Preferred Securities of
all series entitled to vote for the appointment of a Special Regular Trustee
vote for such appointment, no Special Regular Trustee shall be appointed.
If any proposed amendment or modification to the Declaration
would materially and adversely affect the powers, privileges, preferences or
special rights of the Series A Preferred Securities, then the Holders of
outstanding Series A Preferred Securities will be entitled to vote on such
amendment or proposal as a class and such amendment or proposal shall not be
effective except with the approval of the Holders
8
<PAGE> 9
of Series A Preferred Securities representing 66-2/3% in liquidation amount of
outstanding Series A Preferred Securities; provided, however, that any such
amendment or modification which would (i) increase the number of authorized
Securities that the Trust is authorized to issue, (ii) decrease the number of
Preferred Securities of a series but not below the number of Preferred
Securities of the series then outstanding or (iii) authorize, create or issue
any additional series of Preferred Securities on a parity with or junior to the
Series A Preferred Securities as to distributions or upon liquidation,
dissolution, winding-up or termination of the Trust shall be deemed not to
materially and adversely affect such power, special rights, preferences or
privileges; and provided, further, if Holders of Series A Preferred Securities
have a right to vote as provided in this Paragraph but such amendment or
proposal arises out of, or is substantially similar to, an amendment or a
modification of the Partnership Agreement as described in the following
paragraph and with respect to which the Property Trustee is required to obtain
the direction of Holders of Series A Preferred Securities as described below,
then to the extent permitted by applicable law, no separate vote pursuant to the
Declaration shall be required and the vote obtained in connection with the
Property Trustee seeking the direction of Holders of Series A Preferred
Securities shall constitute complete and sufficient action with respect to such
amendment or modification of the Declaration.
In the event the consent or vote of the Property Trustee, as the
Holder of the Series A Preferred L.P. Units of IAC, L.P., is required with
respect to any amendment or modification of the Partnership Agreement, the
Property Trustee shall request the written direction of the Holders of the
Series A Preferred Securities with respect to such amendment or modification and
the Property Trustee shall vote the Series A Preferred L.P. Units with respect
to such amendment or modification as directed by a Majority in aggregate
liquidation amount of the Series A Preferred Securities voting together as a
single class; provided that where such amendment or modification under the
Partnership Agreement requires the consent of Holders of Series A Preferred L.P.
Units representing a specified percentage greater than a Majority in aggregate
liquidation amount of the Series A Preferred L.P. Units, the Property Trustee
may only give such consent at the direction of the Holders of Series A Preferred
Securities representing such specified percentage of the aggregate liquidation
amount of the Series A Preferred Securities.
Any required approval or direction of Holders of Series A
Preferred Securities may be given at a separate meeting of Holders of Series A
Preferred Securities convened for such purpose, at a meeting of all of the
Holders of Preferred Securities of the Trust or pursuant to written consent. The
Regular Trustees will
9
<PAGE> 10
cause a notice of any meeting at which Holders of Series A Preferred Securities
are entitled to vote, or of any matter upon which action by written consent of
such Holders is to be taken, to be mailed to each Holder of record of Series A
Preferred Securities. Each such notice will include a statement setting forth
(i) the date of such meeting or the date by which such action is to be taken,
(ii) a description of any resolution proposed for adoption at such meeting on
which such Holders are entitled to vote or of such matter upon which written
consent is sought and (iii) instructions for the delivery of proxies or
consents.
No vote or consent of the Holders of Series A Preferred
Securities will be required for the Trust to redeem and cancel Preferred
Securities of any series.
Notwithstanding that Holders of Series A Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Series A Preferred Securities at such time that are owned by IAC, Inc.,
IAC, L.P. or by any entity directly or indirectly controlling or controlled by
or under direct or indirect common control with IAC, Inc. or IAC, L.P. shall not
be entitled to vote or consent and shall, for purposes of such vote or consent,
be treated as if they were not outstanding.
7. RANKING. The Series A Preferred Securities rank, with respect
to distributions and rights upon liquidation, dissolution, winding-up or
termination of the Trust (i) senior to the Common Securities and (ii) on a
parity with all other series of Preferred Securities issued by the Trust unless
the terms of such other series specifically provide that such other series ranks
junior to the Series A Preferred Securities.
9. CONVERSION RIGHTS. Except as otherwise provided in Article
VIII of the Declaration regarding exchanges for Excess Preferred Securities, the
Series A Preferred Securities are not convertible into or exchangeable or
exercisable for any other property or securities of the Trust, IAC, Inc. or IAC,
L.P.
10. TRANSFER, EXCHANGE, METHOD OF PAYMENTS. In the event the
Series A Preferred Securities do not remain in book-entry only form, the
following provisions shall apply:
Payment of distributions and payments on redemption or at the stated
maturity of the Series A Preferred Securities will be payable, the transfer of
the Series A Preferred Securities will be registerable, and Series A Preferred
Securities
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<PAGE> 11
will be exchangeable for Series A Preferred Securities of other denominations of
a like aggregate liquidation amount, at the principal corporate trust office of
the Property Trustee in The City of New York; provided that payment of
distributions may be made at the option of the Regular Trustees on behalf of the
Trust by check mailed to the address of the persons entitled thereto and that
the payment on redemption or at the stated maturity of any Series A Preferred
Security will be made only upon surrender of such Preferred Security to the
Property Trustee.
If fewer than all of the Series A Preferred Securities are to be
redeemed, the Property Trustee shall select Series A Preferred Securities to be
redeemed by lot or pro rata (as nearly as practicable without creating
fractional Series A Preferred Securities) or in some other equitable manner
determined by the Property Trustee upon consultation with the Regular Trustees.
In the event of any redemption of Series A Preferred Securities in part,
the Trust shall not be required to (i) issue, register the transfer of or
exchange any Series A Preferred Securities during a period beginning at the
opening of business 15 days before any selection for redemption of Series A
Preferred Securities and ending at the close of business on the earliest date on
which the relevant notice of redemption is deemed to have been given to all
Holders of Series A Preferred Securities to be redeemed and (ii) register the
transfer of or exchange any Series A Preferred Securities so selected for
redemption, in whole or in part, except the unredeemed portion of any Series A
Preferred Securities being redeemed in part. Holders of Series A Preferred
Securities shall surrender such Series A Preferred Securities at the place
designated in the notice of redemption and shall be entitled to the Series A
Redemption Price upon such redemption following such surrender.
Upon presentation of any Certificate for Series A Preferred
Securities redeemed in part only, the Trust shall execute and deliver, at the
expense of the Trust, a new Certificate equal to the unredeemed portion of the
Certificate so presented.
11. NO PREEMPTIVE RIGHTS. The Holders of Preferred Securities
shall have no preemptive rights to subscribe to any additional Preferred
Securities or Common Securities.
12. MISCELLANEOUS. (a) Upon the repayment of the Series A
Preferred Securities, whether at their stated maturity, upon redemption or
otherwise or upon their cancellation as provided in Paragraph 5(e)(iv) hereof,
the Series A
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<PAGE> 12
Preferred Securities so repaid or cancelled shall have the status
of authorized and unissued Preferred Securities undesignated as to series and
may be redesignated and reissued as part of any series of Preferred Securities.
(b) Upon issuance, the Series A Preferred Securities will be
fully paid and non-assessable. This Certificate of Terms shall constitute a part
of the Declaration.
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<PAGE> 13
IN WITNESS WHEREOF, this Certificate of Terms of Series A Preferred Securities
is duly executed as of January 20, 1998.
/s/ JAMES E. MEAD
- ---------------------------------------
James E. Mead,
not in his individual capacity
but solely as a Trustee
<PAGE> 14
IN WITNESS WHEREOF, this Certificate of Terms of Series A Preferred Securities
is duly executed as of January 20, 1998.
IRVINE APARTMENT COMMUNITIES, INC.,
as general partner of
Irvine Apartment Communities, L.P.
By:
---------------------------------------
James E. Mead,
Title: Senior Vice President, Chief
Financial Officer and Secretary
13
<PAGE> 1
EXHIBIT 10.3
[IAC
IRVINE APARTMENT COMMUNITIES
LETTERHEAD]
February 26, 1998
Mr. James Mead
1979 Port Claridge Place
Newport Beach, CA 92660
Dear Jim:
This letter confirms the terms of your employment as approved by the Board of
Directors on February 6, 1998. To ensure our mutual understanding, the basic
provisions are:
Time Frame: The terms of this employment agreement extend from January
1, 1998 to December 31, 2002.
Base Salary: $20,833/month ($250,000 annual equivalency). During the five
year term, you will be eligible for salary increases as
approved by the Compensation Committee.
Cash Bonus: You will be eligible to earn an annual payment of 0-100% of
your base salary, based upon your performance and the
Company's performance.
Stock Options: You have been awarded 38,000 stock options on February 6,
1998 at an exercise price equivalent to the closing price of
the stock on February 6, 1998 ($31.625 per share). In
addition, you will be awarded 25,000 stock options in 1999
and 20,000 stock options in 2000, assuming your continued
employment with the Company. All of these options will
vest at the rate of one third each year over a three year
period following their grant date.
Restricted Stock: You have been awarded 20,000 shares of restricted stock in
1998, which will become eligible for vesting over a five
year period at the rate of 0%, 20%, 20%, 20%, 40%, based on
IAC's performance in achieving FAD per share targets as
determined by the Compensation Committee for 1998 awards.
In addition, you will be awarded 10,000 shares of restricted
stock in 1999, assuming continued employment. This award
shall be eligible for vesting over a four year period at the
rate of 0%, 20%, 20% 60% based upon achievement of FAD per
share targets as determined by the Compensation Committee
for 1999 awards.
<PAGE> 2
James Mead
Page 2
February 26, 1998
In addition, you will be awarded 10,000 shares of restricted
stock in 2000, assuming continued employment. This award
shall be eligible for vesting over a three year period at
the rate of 0%, 20%, 80% based upon achievement of FAD per
share targets as determined by the Compensation Committee
for 2000 awards.
Despite the accelerated vesting schedule of the 1999 and
2000 restricted stock awards, both of these awards will
retain the normal five year opportunity for "catch-up"
vesting of previously unearned shares. Specifically, all of
the shares of the 1999 award may be earned by 2002; but any
shares that are not earned by 2002 may still be earned by
applying the FAD achieved in 2003 to the previous FAD
targets for each vesting date. Similarly, all of the shares
from the 2000 award that are still unearned by 2002, may
still be earned by applying the FAD achieved in 2003 and
2004 to the previous FAD targets for each vesting date.
Dividend
Equivalents: You will receive quarterly dividend equivalent payments on
the shares of restricted stock in amounts, and at such
times, as shareholders receive dividends on IAC shares.
Severance: You will be provided with a payment of 24 months salary if
your employment is terminated involuntarily prior to
December 31, 2000. You will be provided with 18 months
salary if your employment is terminated involuntarily
between January 1, 2001 and December 31, 2002. However,
severance will not be provided if your termination is for
"just cause". A "just cause" employment termination shall
exist in the following circumstances: (1) dishonesty, fraud
or breach of trust, or (2) willful engagement in any
misconduct in the performance of duties that materially
injures the Company, or (3) willful and substantial
non-performance of assigned duties, provided that such
nonperformance has continued for more than ten days after
the Company has given notice of such nonperformance and of
its intention to terminate your employment because of such
nonperformance.
Auto Allowance: $700 per month.
Benefits: You will continue to participate in corporate fringe
benefits programs (health, life insurance, etc.) as
established by Company policy.
<PAGE> 3
James Mead
Page 3
February 26, 1998
Your confirmation that the terms of your employment are accurately described
above will be indicated by signing and returning the duplicate of this letter
to me. If you have any questions, please do not hesitate to ask.
Sincerely,
[SIG]
William McFarland
President
I understand and accept that the terms of this employment letter are all
inclusive and supersede all other verbal or written discussions of my terms of
employment.
Signature: [SIG] Date: 03/20/98
------------------------------- ------------
James Mead
<PAGE> 1
EXHIBIT 10.4.2
AMENDMENT TO THE MISCELLANEOUS RIGHTS AGREEMENT EXECUTED IN CONNECTION
WITH SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
AMENDMENT No. 2 dated as of January 20, 1998 to the Miscellaneous
Rights Agreement dated as of March 20, 1996, as amended by Amendment No. 1
thereto dated as of July 25, 1997 (the "Existing Agreement") by and among Irvine
Apartment Communities, Inc. (the "Company"), Irvine Apartment Communities, L.P.
(the "Operating Partnership") and The Irvine Company ("The Irvine Company").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery hereof, the
Partnership Agreement is being amended and restated in its entirety to, among
other things, provide for the issuance by the Partnership of Preferred Limited
Partner Interests (as defined therein) in series; and
WHEREAS, the execution and delivery of this Amendment No. 2 by
the Company and the Operating Partnership has been approved by resolutions duly
adopted by the Board of Directors of the Company and by the Independent
Directors Committee of such Board.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. The parties acknowledge and agree that all references in the
Existing Agreement (i) to the Partnership Agreement shall mean the Second
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership dated as of January 20, 1998, as the same may be amended, modified
or restated from time to time and (ii) to "limited partnership interests" or
"L.P. Units" shall mean the Common Limited Partner Interests as defined in such
Second Amended and Restated Agreement of Limited Partnership.
Section 2. Except as amended by this Amendment No. 2, the provisions
of the Existing Agreement are ratified, approved and confirmed and shall remain
in full force and effect in accordance with its terms.
Section 3. This Amendment No. 2 shall become effective when signed by
the parties to the Existing Agreement.
Section 4. This Amendment No. 2 shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland, without
regard to the choice of law provisions thereof.
<PAGE> 2
Section 5. This Amendment No. 2 may be executed in counterparts, all of
which shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
2 as of the date and year first written above.
IRVINE APARTMENT COMMUNITIES, INC.
By:
----------------------------------------
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
IRVINE APARTMENT COMMUNITIES, L.P.
By: Irvine Apartment Communities, Inc.,
General Partner
By:
----------------------------------------
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
THE IRVINE COMPANY
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
2
<PAGE> 1
EXHIBIT 10.6.5
AMENDMENT TO LAND RIGHTS AGREEMENT EXECUTED IN CONNECTION WITH EXECUTION OF
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF IRVINE
APARTMENT COMMUNITIES, L.P.
AMENDMENT No. 5 dated as of January 20, 1998 to the Exclusive Land
Rights and Non-Competition Agreement dated as of November 21, 1993 as amended
by Amendment No. 1 thereto dated April 20, 1995, Amendment No. 2 thereto dated
July 18, 1995, Amendment No. 3 thereto dated as of May 2, 1996 and Amendment
No. 4 thereto dated as of July 25, 1997 (as so amended, the "Existing
Agreement").
W I T N E S S E T H:
WHEREAS, The Irvine Company, a Michigan corporation, Irvine Apartment
Communities, L.P., a Delaware limited partnership ("Partnership"), Irvine
Apartment Communities, Inc., a Maryland corporation (the "Corporation"), and Mr.
Donald Bren, an individual, have entered into the Existing Agreement;
WHEREAS, the Corporation, The Irvine Company, in its capacity as a
limited partner of the Partnership, and the other limited partners of the
Partnership have executed and delivered as of the date hereof the Second Amended
and Restated Agreement of Limited Partnership of Irvine Apartment Communities,
L.P. (the "New Partnership Agreement").
WHEREAS, as a result of the execution of the New Partnership Agreement
the parties hereto agree that it is necessary and desirable to amend the
Existing Agreement as set forth below; and
WHEREAS, the execution and delivery of this Amendment by the Partnership
and the Corporation have been approved by resolutions duly adopted by the
Independent Directors Committee of the Board of Directors of the Corporation.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. From and after the date hereof all references in the Existing
Agreement (including the exhibits thereto) to (i) "limited partnership
interests" or "L.P. Units" shall mean the Common Limited Partner Interests as
defined in the New Partnership Agreement, (ii) "Registration Rights Agreement"
shall mean the New Partnership Agreement and (iii) the "Amended and Restated
Agreement of Limited Partnership of Irvine Apartment Communities, L.P. dated as
of December 1, 1993, as amended" shall mean the New Partnership Agreement as the
same may be amended, modified or restated from time to time.
<PAGE> 2
Section 2. Except as amended hereby, the provisions of the Existing
Agreement are ratified, approved and confirmed and shall remain in full force
and effect in accordance with its terms.
Section 3. The validly, construction and enforceability of this
Amendment shall be governed in all respects by the internal laws of the State of
California without regard to its conflict of laws rules.
Section 4. This Amendment may be executed in two or more counterparts,
all of which taken together with signature pages from each party hereto shall be
considered the same agreement, binding against all parties hereto.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
"IRVINE" "PARTNERSHIP"
THE IRVINE COMPANY, IRVINE APARTMENT COMMUNITIES, L.P.,
a Michigan corporation a Delaware limited partnership
By: By: IRVINE APARTMENT COMMUNITIES, INC.,
--------------------
a Maryland corporation, its sole General
Partner
By: By:
-------------------- -----------------------------------------
James E. Mead
Senior Vice President and Chief Financial
Officer
By:
-----------------------------------------
Shawn Howie
Vice President, Corporate Finance and
Controller
"BREN" "REIT"
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation
By:
- ----------------------- -----------------------------------------
DONALD BREN James E. Mead
Senior Vice President and Chief Financial
Officer
By:
-----------------------------------------
Shawn Howie
Vice President, Corporate Finance and
Controller
3
<PAGE> 1
EXHIBIT 10.15
[IAC
IRVINE APARTMENT COMMUNITIES
LETTERHEAD]
April 28, 1997
Richard E. Lamprecht
4 San Rafael Place
Laguna Niguel, CA 92656
Dear Rick:
Donald Bren and I are very pleased to promote you to the position of Division
President, Irvine Ranch Operations. This letter will confirm the terms of your
employment in this new role.
Position Title: Division President, Irvine Ranch Operations
Effective Date: April 25, 1997
Base Salary: $16,667/month ($200,000 annual equivalency)
Cash Bonus: For 1997 only, you will be guaranteed a cash bonus award of
$200,000 assuming continued employment through the
remainder of the year. In future years, you will be eligible
to earn an annual payment of 0-100% of your base salary,
based upon your performance and the Company's performance.
Stock Options: In addition to the award of 10,000 stock options that you
received on February 4, 1997; you will be provided with
another 20,000 options awarded effective April 25, 1997 at
an exercise price of $26.625 per share. You will also be
provided with an annual award of 10,000 stock options in
each of the years 1998 through 2001 assuming continued
employment. As with your previous restricted stock award,
you will receive quarterly dividend payments for these new
shares.
Auto Allowance: $700 per month.
Physical
Examination: You will be eligible for a periodic physical examination at
the Company's expense.
<PAGE> 2
Rick Lamprecht
Page Two
Benefits: You will continue to participate in corporate fringe
benefits programs (health, life insurance, etc.) as
established by Company policy.
Your official acceptance of these terms of employment will be indicated by
signing and returning the duplicate of this letter to me. If you have any
questions, please do not hesitate to call. Congratulations again on your
expanded role in Irvine Apartment Communities.
Sincerely,
[SIG]
William H. McFarland
Director
I understand and accept that the terms of this employment letter are all
inclusive and supersede all other verbal or written discussions of my terms of
employment.
Signature: [SIG] Date: 4-28-97
--------------------------------- ---------------------
Richard E. Lamprecht
<PAGE> 1
EXHIBIT 12 - RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges for Irvine Apartment Communities, Inc. and Irvine Apartment Communities,
L.P.:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS
Earnings (loss) before extraordinary item $58,583 $41,192 $25,056 $12,279 $ (387)
Add back:
Interest expense 30,365 29,506 25,894 26,827 50,248
Amortization of deferred financing costs 2,369 2,627 8,510 15,942 3,012
Portion of rent expense deemed to
represent interest 128 115 89 68
------------------------------------------------
Earnings available for fixed charges $91,448 $73,440 $59,549 $55,116 $52,873
================================================
FIXED CHARGES
Interest expense $30,368 $29,506 $25,894 $26,827 $50,248
Amortization of deferred financing costs 2,369 2,627 8,510 15,942 3,012
Capitalized interest 5,704 3,151 6,779 1,261 233
Portion of rent expense deemed to
represent interest 128 115 89 68
------------------------------------------------
Fixed Charges $38,569 $35,399 $41,272 $44,098 $53,493
================================================
Ratio of earnings to fixed charges 2.37x 2.07x 1.44x 1.25x .99x
================================================
Excess of fixed charges over earnings $ (620)
=========
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of net earnings before income taxes, extraordinary items and
fixed charges. Fixed charges consist of interest expense, capitalized interest,
amortization of deferred financing costs and that portion of rental expense
representative of the interest factor in leases. The ratios are computed using
the amounts for IAC and the Operating Partnership, on a consolidated basis,
including its majority owned subsidiary. IAC and the Operating Partnership did
not have any Preferred L.P. Units outstanding in any of the periods indicated,
and, therefore, the ratio of earnings to combined fixed charges and Preferred
L.P. Unit distributions for each of the periods indicated was equal to the ratio
of earnings to fixed charges for such period.
Prior to completion of IAC's initial public offering in December 1993, the
Predecessor of IAC and the Operating Partnership operated in a highly leveraged
manner. As a result, although IAC, the Operating Partnership and the
Predecessor have historically generated positive net cash flow, the financial
statements of the Predecessor showed net losses for the periods prior to
December 8, 1993. Consequently, the computations of the ratio of earnings to
fixed charges for such periods indicate that earnings were inadequate to cover
fixed charges by approximately $0.6 million for the year ended December 31,
1993.
<PAGE> 1
EXHIBIT 13
IRVINE APARTMENT COMMUNITIES, INC.
SELECTED FINANCIAL INFORMATION(1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Years Ended December 31,
(in thousands, except percentages,
per share and property information) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING INFORMATION
Total revenues $ 186,945 $ 158,698 $ 136,168 $ 130,236 $ 124,820
Income (loss) before extraordinary
item and minority/predecessor
interest in income (loss) $ 58,583 $ 41,192 $ 25,056 $ 12,279 $ (387)
Net income $ 26,404 $ 18,746 $ 8,465 $ 7,273 $ 115
Basic earnings per share(2) $ 1.34 $ 1.06 $ 0.61 $ 0.62 $ 0.01
Diluted earnings per share(2) $ 1.33 $ 1.05 $ 0.05 $ 0.41 $ 0.01
Cash distributions per share $ 1.48 $ 1.44 $ 1.39 $ 1.11
Apartment units (at end of period) 15,136 13,656 12,776 11,358 11,334
- ----------------------------------------------------------------------------------------------------------
SELECTED STABILIZED
PROPERTY INFORMATION(3)
Total properties (at end of period) 51 48 43 43 42
Average units 14,452 12,139 11,334 11,334 10,799
Average physical occupancy 94.5% 94.9% 94.6% 95.6% 96.3%
Average monthly rent per unit(4) $ 1,116 $ 1,025 $ 996 $ 981 $ 963
- --------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET INFORMATION
AT DECEMBER 31,
Total assets $1,163,677 $ 900,998 $ 853,230 $ 757,240 $ 740,120
Total long-term debt $ 704,063 $ 553,064 $ 563,286 $ 540,689 $ 513,943
Shareholders' equity and minority
interest $ 421,227 $ 320,344 $ 264,566 $ 191,049 $ 212,344
=========================================================================================================
</TABLE>
(1) The selected financial information includes historical data of the Company
and, prior to December 8, 1993, the date of the Company's initial public
offering, the Company's Predecessor. See Note 1 to Consolidated Financial
Statements.
(2) Differences between basic and diluted earnings per share in 1995 and 1994
are primarily due to the impact of the Company's debt extinguishment costs
which were allocated to The Irvine Company in accordance with the Operating
Partnership Agreement.
(3) A property is considered stabilized at the earlier of one year after
completion of construction or when it achieves 95% occupancy.
(4) Average monthly rent per unit is calculated by dividing average rental
revenue per unit by average economic occupancy.
1
<PAGE> 2
IRVINE APARTMENT COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion should be read in conjunction with the Selected
Financial Information, the Consolidated Financial Statements of Irvine Apartment
Communities, Inc. and the Notes thereto.
OVERVIEW
Irvine Apartment Communities, Inc. (the "Company"), a Maryland corporation,
operates as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended. At December 31, 1997, the Company had a 44.4% general
partnership interest in and was the sole managing general partner of Irvine
Apartment Communities, L.P. (the "Operating Partnership") which began operations
as of December 8, 1993, the date of the Company's initial public offering of
common stock. At December 31, 1997, the limited partners had a 55.6% limited
partnership interest in the Operating Partnership, with The Irvine Company and
certain of its affiliates owning a 55.4% common limited partnership interest in
the Operating Partnership.
The Company is a self-administered equity REIT engaged in the operation and
development of apartment communities in Orange County, California and, since
January 1997, in Northern California's Silicon Valley and in northern coastal
markets of San Diego County. The Company's intent is to create new market
positions in California which possess rental demographics and economic growth
prospects similar to those on the Irvine Ranch. As of December 31, 1997, the
Operating Partnership owned and operated 59 properties containing 15,136
apartment units and had 2,112 units under construction or development. Until
July 31, 2020, the Company and the Operating Partnership have the exclusive
right, but not the obligation, to acquire land from The Irvine Company for
development of additional apartment communities on the Irvine Ranch.
In March 1998, the Operating Partnership and Western National Property
Management announced the formation of a strategic alliance that, in April 1998,
will assume all property management responsibilities for the Operating
Partnership's current Southern California portfolio. The new entity, Irvine
Apartment Management Company, will be owned 51% by the Operating Partnership and
49% by Western National Property Management. The Company believes that this
strategic alliance will create greater efficiencies and enhance service to
customers.
RESULTS OF OPERATIONS
The Company's income before extraordinary item and minority interest was $58.6
million in 1997, up from $41.2 million in 1996 and $25.1 million in 1995. The
Company's financial results improved in 1997 due to the contribution of newly
delivered rental units from its development program, an acquisition and an
increase in rental rates within its stabilized portfolio. In 1996, financial
results improved due to the contribution of newly delivered rental units from
its development program, cost reductions and an increase in revenues within its
stabilized portfolio achieved primarily through higher occupancy and rental
rates.
2
<PAGE> 3
IRVINE APARTMENT COMMUNITIES, INC.
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
Years Ended December 31,
(dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNITIES STABILIZED MORE THAN TWO YEARS
Number of communities 43 43 43
Number of units at end of period 11,334 11,334 11,334
Operating revenues $140,612 $133,287 $130,082
Property expenses $ 31,249 $ 29,466 $ 30,325
Real estate taxes $ 10,693 $ 10,799 $ 11,256
Property management fees $ 4,061 $ 3,851 $ 3,733
Depreciation and amortization $ 20,574 $ 20,757 $ 21,237
COMMUNITIES STABILIZED LESS THAN TWO YEARS (1)
Number of communities 5 5 5
Number of units at end of period 2,207 2,207 1,442
Operating revenues $ 31,950 $ 24,656 $ 5,675
Property expenses $ 5,185 $ 4,351 $ 1,436
Real estate taxes $ 2,958 $ 2,693 $ 746
Property management fees $ 827 $ 647 $ 160
Depreciation and amortization $ 5,741 $ 6,304 $ 1,858
LEASE-UP AND NEWLY ACQUIRED COMMUNITIES (2)
Number of communities 6 2
Number of units at end of period 1,595 115
Operating revenues $ 13,543 $ 144
Property expenses $ 2,936 $ 42
Real estate taxes $ 1,362 $ 4
Property management fees $ 298 $ 4
Depreciation and amortization $ 2,737 $ 26
========================================================================================
</TABLE>
(1) Represents five communities that began leasing in 1995 and reached
stabilized occupancy (95%) at various dates in 1996.
(2) Includes two communities (527 units) that reached stabilized occupancy (95%)
at various dates in 1997, one community (923 units) acquired on June 30,
1997 and three communities in lease- up at December 31, 1997.
OPERATING REVENUES (rental and other income) increased by 17.7% to $186.1
million in 1997, up from $158.1 million in 1996. Operating revenues in 1996 had
increased by 16.4% from $135.8 million in 1995. Operating revenues rose in 1997
because of higher rental rates and a larger average number of rental units in
service as a result of both new development and an acquisition in June 1997.
Newly delivered and acquired units and communities stabilized less than two
years added $45.5 million to operating revenues in 1997 from eleven properties,
compared to $24.7 million in 1996 from five properties. Operating revenues
generated by communities owned and stabilized more than two years increased 5.5%
in 1997, due to an improvement in the average monthly rental rate, partially
offset by a decrease in average physical occupancy to 94.6% from 95.0%. The
average monthly rental rate for these communities increased 6.2% to $1,078 in
1997, from $1,015 in 1996.
Operating revenues rose in 1996 from the prior year as a result of higher
occupancy and rental rates, and the contribution of five properties that
achieved stabilization during 1996. These five properties added $24.7 million to
operating revenues in 1996, compared to $5.7 million in 1995. For communities
stabilized more than two years, operating revenues increased 2.5% in 1996,
primarily due to increases in rental rates and an increase in average physical
occupancy to 95.0% from 94.6% in 1995. The average monthly rental rate in these
communities increased 1.9% to $1,015 in 1996, from $996 in 1995.
PROPERTY EXPENSES increased by 16.2% to $39.4 million in 1997 from $33.9 million
in 1996, which had increased from $31.8 million in 1995. The 1997 increase
primarily reflects the added expenses from the newly delivered and acquired
rental units and communities stabilized less than two years. Property expenses
for communities owned and stabilized more than two years increased by $1.7
million to $31.2 million from $29.5 million in 1996. Average monthly property
expenses generated by these communities increased to $230 per unit in 1997 from
$217 per unit in 1996, primarily as a result of higher insurance expenses,
higher unit turnover and related expenses, and preventative maintenance
scheduled in anticipation of an unseasonably wet winter. Five communities
stabilized less than two years added $5.2 million to property expenses in 1997
and $4.4 million in 1996. Lease-up and newly acquired properties added $2.8
million in 1997.
The increase in 1996 from the prior year reflects the added expenses from
five properties that achieved stabilization during 1996. Property expenses for
communities stabilized more than two years decreased 2.8% to $29.5 million in
1996 from $30.3 million in 1995. The Company achieved reductions in its per-unit
property expenses in 1996 and earlier years through aggressive bidding of
external service and purchase contracts and a series of initiatives to enhance
the efficiency of customer service and property maintenance operations. In 1996,
average monthly property expenses for communities stabilized more than two years
decreased to $217 per unit from $223 per unit in 1995.
3
<PAGE> 4
IRVINE APARTMENT COMMUNITIES, INC.
REAL ESTATE TAXES totaled $15.0 million in 1997, $13.5 million in 1996 and $12.0
million in 1995. Real estate taxes increased in 1997 and 1996 due primarily to
the addition of new rental units, partially offset by a reduction in assessed
values.
PROPERTY MANAGEMENT FEES increased to $5.2 million in 1997 from $4.5 million in
1996 and $3.9 million in 1995. Management fees increased in each of the last
three years due to the addition of rental units and an increase in revenue from
communities stabilized more than two years.
NET INTEREST EXPENSE increased to $30.4 million in 1997 from $29.5 million in
1996 and $25.9 million in 1995. The increase in 1997 was largely due to a
greater level of borrowing under the credit facility, which was used to finance
the acquisition in June 1997. The 1996 increase was due to new properties placed
into service. The Company capitalizes interest on projects actively under
development using qualifying asset balances and applicable weighted average
interest rates. Capitalized interest totaled $5.7 million in 1997, $3.2 million
in 1996 and $6.8 million in 1995. Total interest incurred was $36.1 million in
1997 and $32.7 million in both 1996 and 1995.
INTEREST INCOME totaled $0.8 million in 1997, $0.6 million in 1996 and $0.4
million in 1995. The changes in interest income reflect changes in the Company's
average cash balances.
AMORTIZATION OF DEFERRED FINANCING COSTS decreased by 7.7% to $2.4 million in
1997 from $2.6 million in 1996, which was down from $8.5 million in 1995. The
$0.2 million decrease in 1997 was due to the full amortization of certain loan
costs during the year. The $5.9 million decrease in 1996 from the prior year was
due to the elimination of deferred financing costs resulting from an
extraordinary charge in 1995 of $23.4 million related to the refinancing of
tax-exempt mortgage debt.
DEPRECIATION AND AMORTIZATION EXPENSE increased by 7.7% to $29.3 million in
1997, up from $27.2 million in 1996. These expenses had increased in 1996 by
17.7% from $23.1 million in 1995. The increases in both years reflect the
completion and delivery of newly developed rental units. The 1997 amount also
reflects six months of depreciation from the newly acquired community.
GENERAL AND ADMINISTRATIVE EXPENSE increased to $6.7 million in 1997, up from
$6.3 million in 1996 and $5.9 million in 1995. These increases were largely the
result of increased staff levels necessitated by the Company's growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash provided by operations will be adequate to meet
both operating requirements and payment of distributions by the Company in
accordance with REIT requirements in both the short and long term.
LIQUIDITY: The Company expects to meet its long-term liquidity requirements,
such as construction costs, scheduled debt maturities and potential future
property acquisitions, through the issuance or refinancing of long-term debt,
borrowings from financial institutions, or the issuance of additional equity
securities of the Company, partnership units by the Operating Partnership or
preferred securities by the Trust. In June 1997, the Operating Partnership
renewed its $250 million unsecured revolving credit facility for a three-year
term. Borrowings under the credit facility currently bear interest at LIBOR plus
0.70% or prime. The interest rates under the credit facility are adjusted up or
down based on the credit ratings on the Operating Partnership's senior unsecured
long-term indebtedness. Availability under the credit facility was $175 million
at December 31, 1997. In January 1998, outstanding borrowings under the credit
facility were repaid from the proceeds of the offering by IAC Capital Trust of
its 8-1/4% Series A REIT Trust Originated Preferred Securities (the "8-1/4%
Series A Preferred Securities") as discussed below.
EQUITY OFFERING: In February 1997 the Company sold, in a public offering, 1.15
million shares of common stock at $27.50 per share. Concurrently, The Irvine
Company, pursuant to its rights under the Operating Partnership Agreement,
purchased 1.39 million additional common limited partnership units at $26.06 per
unit (which is equal to the public offering price of the common stock less an
amount equivalent to the underwriting discount) which are exchangeable for
common stock on a one for one basis, subject to adjustment and certain
limitations. The proceeds from the two transactions totaled $66 million and were
used to repay all of the then outstanding indebtedness under the credit
facility, and for general corporate purposes, including development of new
apartment communities.
4
<PAGE> 5
IRVINE APARTMENT COMMUNITIES, INC.
SHELF REGISTRATION STATEMENTS: In May 1997 the Company filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of common stock, preferred
stock, and warrants to purchase common stock and preferred stock. The Company
plans to use the proceeds raised from any securities issued under its shelf
registration statement for general corporate purposes, including the development
of new apartment communities, acquisitions and the repayment of existing debt.
Availability under the Company's shelf registration statement was $350 million
at December 31, 1997. Concurrently, the Operating Partnership filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of debt securities. The
Operating Partnership plans to use the proceeds raised from any securities
issued under its shelf registration statement for general corporate purposes,
including the development of new apartment communities, acquisitions and the
repayment of existing debt. In October 1997, the Operating Partnership issued
$100 million of 7% unsecured notes due in 2007 (the "7% Notes"). Net proceeds of
$97.9 million were used to repay indebtedness under the Operating Partnership's
credit facility that had been incurred to finance the 1997 acquisition of The
Villas of Renaissance. Availability under the Operating Partnership shelf
registration statement was $250 million at December 31, 1997.
IAC CAPITAL TRUST IAC Capital Trust, a Delaware business trust (the "Trust"),
was formed on October 31, 1997. The Trust is a limited purpose financing vehicle
established by the Company and the Operating Partnership. The Trust exists for
the sole purpose of issuing its preferred securities and investing the proceeds
thereof in Preferred Limited Partner Units of the Operating Partnership. In
January 1998, the Trust issued 6.0 million of 8-1/4% Series A Preferred
Securities. The proceeds of $150 million were used to purchase an equivalent
amount of 8-1/4 Series A Preferred Limited Partner Units in the Operating
Partnership. The Operating Partnership used the $150 million of proceeds, net of
costs and expenses, all of which were paid by the Operating Partnership, to
repay the outstanding borrowings under the credit facility and to fund
development.
DEBT: The Company's conventional and tax-exempt mortgage debt bears interest at
fixed interest rates, or variable rates that have been effectively fixed through
interest rate swap agreements. Interest rates on conventional mortgage debt were
reduced to then-current market rates at the time of the Company's December 1993
initial public offering through interest rate buy-down agreements that are
scheduled to expire at various dates prior to loan maturity that range from 2000
to 2008. The weighted average effective interest rate on the Company's debt,
including the non-cash charges of amortization of deferred financing costs, was
6.40% at December 31, 1997. The Company uses interest rate swap agreements to
effectively convert its floating rate tax-exempt mortgage bond financings to a
fixed-rate basis, thus reducing the impact of fluctuations in interest rates on
future income. The average interest rate on the tax-exempt mortgage bond
financings after giving effect to the swap agreements and including all fees was
5.81% in 1997. The swap agreements terminate from 2002 to 2007.
DEBT STRUCTURE
<TABLE>
<CAPTION>
Balance at Weighted
December 31, Average
(dollars in millions) 1997 Interest Rate
- --------------------------------------------------------------------------------------
<S> <C> <C>
Fixed rate debt
Conventional mortgage financings $132.3 7.12%
Mortgage notes payable to
The Irvine Company 50.4 5.75%
Tax-exempt mortgage
bond financings 325.6 5.28%
Tax-exempt assessment
district debt 5.4 6.27%
Unsecured notes payable 99.2 7.10%
- --------------------------------------------------------------------------------------
Total fixed rate debt 612.9 6.02%
- --------------------------------------------------------------------------------------
Variable rate debt
Line of credit 75.0 6.76%
Tax exempt assessment
district debt 16.2 4.30%
- --------------------------------------------------------------------------------------
Total variable rate debt 91.2 6.32%
- --------------------------------------------------------------------------------------
Total debt $704.1 6.06%
======================================================================================
</TABLE>
5
<PAGE> 6
IRVINE APARTMENT COMMUNITIES, INC.
DEFERRED FINANCING COSTS
<TABLE>
<CAPTION>
Weighted
Balance at Average
December 31, Remaining Term
(dollars in millions) 1997 (in years)
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest rate buy-downs on
conventional mortgage
financings $8.2 8.8
Loan origination costs and other 10.9 23.5
- --------------------------------------------------------------------------------
Total $19.1 17.2
================================================================================
</TABLE>
OPERATING ACTIVITIES: Cash provided by operating activities was $94.7 million,
$73.0 million and $55.4 million for 1997, 1996 and 1995, respectively. Cash
provided by operating activities increased in 1997 and 1996 compared to prior
years primarily due to higher revenues from newly developed and acquired
apartment units, as well as increases in revenues within the Company's
stabilized portfolio achieved through higher rental rates.
INVESTING ACTIVITIES: Cash used in investing activities was $249.6 million,
$66.6 million and $128.2 million in 1997, 1996 and 1995, respectively. Changes
in the amount of cash used in investing activities in each year reflect changing
levels of real estate development and an acquisition in 1997. (See Capital
Expenditures.)
FINANCING ACTIVITIES: Cash provided by (used in) financing activities was $156.3
million, $(7.6) million, and $73.7 million in 1997, 1996 and 1995, respectively.
The Company and the Operating Partnership received $66 million from the issuance
of common stock and partnership units in 1997. These proceeds were used to pay
down borrowings under the credit facility. In June 1997, $118 million was
borrowed under the credit facility to fund the acquisition of The Villas of
Renaissance. In October 1997, the Operating Partnership received net proceeds
$97.9 million from the issuance of the 7% Notes. These proceeds were used to
repay outstanding borrowings under the credit facility. Additionally, the
Company paid $64.1 million in distributions in 1997 compared to $56.1 million in
1996 and $44.8 million in 1995. Among the factors affecting cash in 1996, the
Company received $60.0 million from the sale of common stock and partnership
units, compared to $109.3 million in 1995. These proceeds were used to repay
borrowings under the credit facility. In 1995, the $8.3 million of additional
proceeds were received from the refinancing of tax-exempt debt while loan
origination costs of $9.2 million were incurred, and net borrowings from the
credit facility totaled $15.7 million.
CAPITAL EXPENDITURES
Capital expenditures consist of capital improvements and investments in real
estate assets. Capital improvements to operating real estate assets totaled $5.0
million, $4.8 million and $4.5 million in 1997, 1996 and 1995, respectively.
Capital investments in real estate assets totaled $245 million, $62 million and
$124 million in 1997, 1996 and 1995, respectively, and consist of capital
investments in new developments, nonrecurring capital replacements, acquisitions
of apartment communities outside of the Irvine Ranch and land purchases.
RECURRING CAPITAL REPLACEMENTS WITHIN ALL COMMUNITIES STABILIZED. The following
table details expenditures for recurring capital replacements for all
communities stabilized (13,541 units) for 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
(dollars in thousands, except for unit amounts) Total Per unit
- ---------------------------------------------------------------------------------
<S> <C> <C>
Carpet replacements $1,739 $128
Exterior painting, siding and stucco 1,020 75
Upgrades, renovations and
major building items 158 12
Appliances, water heaters
and air conditioning 277 20
Roofing, concrete and pavement 1,237 92
Equipment and other 610 45
- ---------------------------------------------------------------------------------
Total $5,041 $372
=================================================================================
</TABLE>
6
<PAGE> 7
IRVINE APARTMENT COMMUNITIES, INC.
RECURRING CAPITAL REPLACEMENTS WITHIN COMMUNITIES STABILIZED MORE THAN TWO
YEARS. Expenditures for recurring capital replacements within communities
stabilized more than two years totaled $4.8 million, $4.7 million and $4.5
million in 1997, 1996 and 1995, respectively. Average recurring capital
replacements per unit were $428, $415 and $399 in 1997, 1996 and 1995,
respectively. The Company has a policy of capitalizing expenditures related to
new assets, acquisitions, the material enhancement of the value of an existing
asset, or the substantial extension of an existing asset's useful life.
Expenditures for recurring capital replacements in 1998 are expected to be
similar to 1997 levels.
CAPITAL INVESTMENTS IN NEW DEVELOPMENT: The major cash requirements in 1998 are
expected to be for the construction of new apartment communities and possible
acquisitions of apartment communities. Currently, the Company has eight
apartment communities under development that will require total expenditures of
approximately $310.4 million, of which $165.6 million had been incurred at
December 31, 1997. Funding for these developments is expected to come from the
Operating Partnership's $250 million unsecured revolving credit facility (of
which $175 million was available as of December 31, 1997), debt offerings of the
Operating Partnership and preferred securities offerings of the Trust. In
addition, the Company may issue other equity securities as discussed in the
Liquidity section.
CONSTRUCTION INFORMATION
<TABLE>
<CAPTION>
Commencement Estimated Total
Commencement of Leasing Initial Estimated
Of Activity Stabilized Costs
Apartment Community Location Units Construction Activity Occupancy (in millions)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Colony(1) Newport Center, Newport Beach 245 7/96 4Q '97 1Q '99 $45.3
Santa Rosa II(1) Westpark II, Irvine 207 12/96 4Q '97 3Q '98 27.0
Rancho Santa Fe(1) Tustin Ranch, Tustin 316 2/97 4Q '97 1Q '99 39.0
The Hamptons Cupertino 342 5/97 2Q '98 2Q '99 51.9
Sonoma Oak Creek, Irvine 196 11/97 3Q '98 3Q '99 25.4
Brittany Oak Creek, Irvine 393 12/97 4Q '98 2Q '00 44.5
Stonecrest San Diego County 326 3/98 1Q '99 4Q '99 39.3
Avventura San Diego County 232 5/98 3Q '99 1Q '00 38.0
- -------------------------------------------------------------------------------------------------------------
Total 2,257 $310.4
=============================================================================================================
</TABLE>
(1) These three properties were in lease-up at December 31, 1997, with 145 units
delivered and 92 units occupied.
The timing of future commencement and completion of construction, the
commencement of leasing activity and initial stabilized occupancy and estimated
costs of apartment communities that are in development are only estimates.
Actual results will depend on numerous factors, many of which are beyond the
control of the Company. These include the extent and timing of economic growth
in the Company's rental markets; future trends in the pricing of construction
materials and labor; entitlement decisions by local government authorities;
weather patterns; changes in interest rate levels; and other changes in capital
markets. No assurance can be given that the timing or estimates set forth in the
foregoing table will not vary substantially from actual results.
NONRECURRING CAPITAL REPLACEMENTS: Nonrecurring capital expenditures consist of
special programs to upgrade and enhance a community to achieve higher rental
rates. Expenditures for nonrecurring capital replacements totaled $3.3 million
in 1997. These expenditures were made to two properties (Promontory Point and
The Villas of Renaissance). Expenditures for nonrecurring capital expenditures
at Promontory Point and The Villas of Renaissance are expected to be
approximately $5 million in 1998.
ACQUISITION OF THOMPSON RESIDENTIAL AND THE VILLAS OF RENAISSANCE: In February
1997, the assets of Thompson Residential Company, Inc. ("TRC"), a privately
held, Northern California-based multi-family development company, were acquired
for $2 million, which was paid by the issuance of 74,523 common limited
partnership units (exchangeable for common stock of the Company) using the
average closing price of the Company's common stock for the 10 trading days
preceding the acquisition's closing date. In addition, TRC may be paid up to an
additional $2 million in cash or common limited partnership units if an
apartment community (the Hamptons) achieves certain performance targets. The
three senior real estate executives at TRC also joined the Company with primary
responsibility for the Company's California operations outside of the Irvine
Ranch. In June 1997, the Operating Partnership acquired The Villas of
Renaissance, a 923-unit apartment community located in La Jolla, California for
$127 million.
YEAR 2000
Management has examined the Year 2000 issues and believes that they will not
have a material effect on the business, results of operations or financial
condition of the Company.
7
<PAGE> 8
IRVINE APARTMENT COMMUNITIES, INC.
IMPACT OF INFLATION
The Company's business is affected by general economic conditions, including the
impact of inflation and interest rates. Substantially all of the Company's
leases allow, at time of renewal, for adjustments in the rent payable
thereunder, and thus may enable the Company to seek increases in rents.
Substantially all leases are for a period of one year or less. The short-term
nature of these leases generally serves to minimize the risk to the Company of
the adverse effects of inflation. For construction, the Company has entered into
various contracts for the development and construction of new apartment
communities. These are fixed-fee contracts and thus partially insulate the
Company from inflationary risk.
FUNDS FROM OPERATIONS
The Company generally considers funds from operations ("FFO") a useful measure
of performance for an equity REIT. The Company computes FFO in accordance with
standards established by the National Association of Real Estate Investment
Trusts ("NAREIT"). FFO is defined as net income (computed in accordance with
generally accepted accounting principles), excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization of real
estate assets, and after adjustments for unconsolidated partnerships and joint
ventures. Other REITs may not use this definition of FFO. FFO should be
considered in conjunction with net income as presented in the Company's
Consolidated Financial Statements and Notes thereto. FFO should not be
considered an alternative to net income as an indication of the Company's
performance and is not indicative of cash available to fund all cash flow needs.
FFO does not represent cash flows from operating, investing, or financing
activities as defined by generally accepted accounting principles.
CALCULATION OF FFO
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands, unaudited) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $26,404 $18,746 $ 8,465
Add:
Depreciation and amortization 29,052 27,087 23,095
Extraordinary item - debt
extinguishment 23,427
Minority interest in income (loss) 32,179 22,446 (6,836)
- -------------------------------------------------------------------------------------
Funds from operations $87,635 $68,279 $ 48,151
=====================================================================================
</TABLE>
8
<PAGE> 9
IRVINE APARTMENT COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
December 31,
(in thousands, except per share amounts) 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land $ 208,687 $ 176,070
Buildings and improvements 1,015,696 849,924
-------------------------------------------------------------------------------
1,224,383 1,025,994
Accumulated depreciation (248,245) (219,193)
-------------------------------------------------------------------------------
976,138 806,801
Under development, including land 148,424 58,241
-------------------------------------------------------------------------------
1,124,562 865,042
Cash and cash equivalents 4,624 3,205
Restricted cash 1,464 1,376
Deferred financing costs, net of accumulated
amortization, of $10,659 in 1997 and
$8,290 in 1996 19,079 20,187
Other assets 13,948 11,188
-------------------------------------------------------------------------------
$1,163,677 $ 900,998
===============================================================================
LIABILITIES
Mortgages and notes payable
Tax-exempt mortgage bond financings $325,644 $329,248
Conventional mortgage financings 132,256 134,761
Mortgage notes payable to The Irvine Company 50,397 51,227
Tax-exempt assessment district debt 21,544 21,828
Line of credit 75,000 16,000
Unsecured notes payable 99,222
-------------------------------------------------------------------------------
704,063 553,064
Accounts payable and accrued liabilities 30,689 21,496
Security deposits 7,698 6,094
-------------------------------------------------------------------------------
742,450 580,654
MINORITY INTEREST 210,307 140,327
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share;
10,000 shares authorized;
no shares issued or outstanding
Common stock, par value $0.01 per share;
150,000 shares authorized; 19,901 shares
and 18,556 shares issued and outstanding,
respectively 199 186
Excess stock, par value $0.01 per share;
160,000 shares authorized;
no shares issued or outstanding
Additional paid-in capital 235,487 202,116
Accumulated deficit (24,766) (22,285)
-------------------------------------------------------------------------------
210,920 180,017
-------------------------------------------------------------------------------
$1,163,677 $900,998
===============================================================================
</TABLE>
See accompanying notes.
9
<PAGE> 10
IRVINE APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Years Ended December 31,
(in thousands, except per share amounts) 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Rental income $181,902 $154,925 $133,678
Other income 4,203 3,162 2,079
Interest income 840 611 411
----------------------------------------------------------------------------------------------------------
186,945 158,698 136,168
----------------------------------------------------------------------------------------------------------
EXPENSES
Property expenses 39,370 33,859 31,761
Real estate taxes 15,013 13,496 12,002
Property management fees 5,186 4,502 3,893
Interest expense, net 30,368 29,506 25,894
Amortization of deferred financing costs 2,369 2,627 8,510
Depreciation and amortization 29,309 27,239 23,143
General and administrative 6,747 6,277 5,909
----------------------------------------------------------------------------------------------------------
128,362 117,506 111,112
----------------------------------------------------------------------------------------------------------
Income before extraordinary item and minority interest in 58,583 41,192 25,056
income (loss)
Extraordinary item - charge related to debt extinguishment (23,427)
----------------------------------------------------------------------------------------------------------
Income before minority interest in income (loss) 58,583 41,192 1,629
Minority interest in income (loss) 32,179 22,446 (6,836)
===========================================================================================================
NET INCOME $26,404 $18,746 $8,465
===========================================================================================================
EARNINGS PER SHARE:
Basic $ 1.34 $ 1.06 $ 0.61
Diluted $ 1.33 $ 1.05 $ 0.05
===========================================================================================================
</TABLE>
See accompanying notes.
10
<PAGE> 11
IRVINE APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Years Ended December 31,
(in thousands, except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK, PAR VALUE OF $0.01 PER SHARE
Balance at beginning of year $ 186 $ 170 $ 118
Net proceeds from common stock offerings 12 15 52
Proceeds from stock options exercised 1 1
- --------------------------------------------------------------------------------------------------------
Balance at end of year $ 199 $ 186 $ 170
========================================================================================================
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year $ 202,116 $ 170,747 $ 87,345
Net proceeds from common stock offerings 29,588 29,810 83,402
Proceeds from stock options exercised 2,406 1,143
Stock awards issued 242 200
Net proceeds from dividend reinvestment and additional cash
investment plan 1,135 216
- --------------------------------------------------------------------------------------------------------
Balance at end of year $ 235,487 $ 202,116 $ 170,747
========================================================================================================
ACCUMULATED DEFICIT
Balance at beginning of year $ (22,285) $ (15,484) $ (5,710)
Net income 26,404 18,746 8,465
Distributions to shareholders (28,885) (25,547) (18,239)
- --------------------------------------------------------------------------------------------------------
Balance at end of year $ (24,766) $ (22,285) $ (15,484)
========================================================================================================
TOTAL SHAREHOLDERS' EQUITY $ 210,920 $ 180,017 $ 155,433
========================================================================================================
SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of year 18,556 16,975 11,800
Additional shares issued under common stock offerings 1,150 1,491 5,175
Stock options exercised 146 67
Stock awards issued 9 10
Additional shares issued under the dividend reinvestment and
additional cash investment plan 40 13
- --------------------------------------------------------------------------------------------------------
Balance at end of year 19,901 18,556 16,975
========================================================================================================
</TABLE>
See accompanying notes
11
<PAGE> 12
IRVINE APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Years Ended December 1,
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 26,404 $ 18,746 $ 8,465
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary item - charge related to debt extinguishment 23,427
Amortization of deferred financing costs 2,369 2,627 8,510
Depreciation and amortization 29,309 27,239 23,143
Minority interest in income (loss) 32,179 22,446 (6,836)
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Restricted cash (88) (195) (150)
Other assets (3,042) (104) (4,882)
Accounts payable and accrued liabilities 5,972 1,308 3,147
Security deposits 1,604 970 579
- ------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 94,707 73,037 55,403
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets (5,041) (4,766) (4,520)
Capital investments in real estate assets (244,517) (61,850) (123,698)
- ------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (249,558) (66,616) (128,218)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under lines of credit 202,000 78,900 143,344
Payments on lines of credit (143,000) (84,900) (127,600)
Proceeds from tax-exempt mortgage bond financings
and notes payable 334,190
Payments on tax-exempt mortgage bond financings (325,845)
Principal payments (7,224) (7,101) (5,676)
Additions to deferred financing costs (1,261) (9,237)
Net proceeds from dividend reinvestment and additional
cash investment plan 1,926 650
Proceeds from stock options exercised 2,407 1,144
Net proceeds from common stock offerings 29,969 29,825 83,454
Proceeds from issuance of unsecured notes payable 99,208
Contributions from The Irvine Company and certain
of its affiliates 36,333 30,000 25,875
Distributions to The Irvine Company and certain
of its affiliates (35,093) (30,579) (26,527)
Distributions to other limited partners (110)
Distributions to shareholders (28,885) (25,547) (18,239)
- ------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 156,270 (7,608) 73,739
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,419 (1,187) 924
Cash and Cash Equivalents at Beginning of Year 3,205 4,392 3,468
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,624 $ 3,205 $ 4,392
======================================================================================================
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized $ 28,309 $ 29,644 $ 25,165
Tax-exempt assessment district debt assumed $ 2,771 $ 4,184
======================================================================================================
</TABLE>
See accompanying notes
12
<PAGE> 13
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
- -------------------------------------------------------------------------------
NOTE 1-- ORGANIZATION AND BASIS OF PRESENTATION
Irvine Apartment Communities, Inc., a Maryland corporation (the "Company"),
operates as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended. In connection with the Company's initial public
offering of common stock (the "Offering"), the Company obtained a general
partnership interest in and became the sole managing general partner of Irvine
Apartment Communities, L.P., a Delaware limited partnership (the "Operating
Partnership"). The Operating Partnership was formed on November 15, 1993 and
began operations as of December 8, 1993, the date of the offering. In connection
with the Offering, The Irvine Company transferred 42 apartment communities and a
99% interest in a limited partnership which owns one apartment community to the
Operating Partnership. At December 31, 1997, the Company had a 44.4% general
partnership interest in and was the sole managing general partner of the
Operating Partnership. At December 31, 1997, the limited partners had a 55.6%
limited partnership interest in the Operating Partnership, with The Irvine
Company and certain of its affiliates owning a 55.4% limited partnership
interest in the Operating Partnership. In February 1997, the Operating
Partnership acquired the assets of Thompson Residential Company, Inc. The
purchase price was paid by the issuance of 74,523 limited partnership units in
the Operating Partnership. At December 31, 1997, Thompson Residential Company,
Inc. had a 0.2% limited partnership interest in the Operating Partnership. The
Operating Partnership's management and operating decisions are under the
unilateral control of the Company. The Company was incorporated in Delaware on
September 10, 1993. In May 1996, the Company changed its state of incorporation
from Delaware to Maryland.
The Company is a self-administered equity REIT engaged in the operation and
development (through the Operating Partnership) of apartment communities in
Orange County, California and, beginning in 1997, other locations in California.
As of December 31, 1997, the Operating Partnership owned 59 apartment
communities representing 15,136 apartment units and had 2,112 units under
construction or development (collectively, the "Properties"). The Operating
Partnership broke ground on its first apartment community outside of Orange
County, located in Northern California's Silicon Valley, in May 1997. In June
1997, the Operating Partnership acquired a 923-unit apartment community in the
La Jolla region of San Diego County. The Company utilizes independent third
party property management and construction management firms. Until July 31,
2020, the Company and the Operating Partnership have the exclusive right, but
not the obligation, to acquire land from The Irvine Company for development of
additional apartment communities on the Irvine Ranch.
IAC Capital Trust, a Delaware business trust (the "Trust"), was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Company and the Operating Partnership. The Trust exists for the sole
purpose of issuing preferred securities and investing the proceeds thereof in
Preferred Limited Partner Units of the Operating Partnership.
The financial statements include the accounts of the Company and its
financially controlled subsidiary, the Operating Partnership. All intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
December 31, 1997 and 1996, and the revenues and expenses for the three years
ended December 31, 1997. Actual results could differ from those estimates.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION: Real estate assets, which are held as
long-term investments, are stated at cost less accumulated depreciation.
Impairment losses on long-lived assets used in operations are recorded when
events and circumstances indicate that the assets are impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts. As of December 31, 1997, no impairment losses have been
recorded. Land and infrastructure costs are allocated to properties based on
relative fair value. Costs related to the development and construction of
properties are capitalized as incurred. Interest and property taxes are
capitalized to apartment communities which are under active development. When a
building within a community under construction is completed and held available
for occupancy, the related costs are expensed.
Repair and maintenance expenditures are expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their useful
lives. Depreciation is computed on a straight-line basis over the useful lives
of the properties (principally forty years for buildings; twenty years for
siding, roofs and balconies; fifteen years for plumbing and air conditioning
equipment; ten years for pools, tennis courts, parking lots and driveways; and
five to ten years for furniture and fixtures).
13
<PAGE> 14
IRVINE APARTMENT COMMUNITIES, INC.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
with a maturity when purchased of three months or less to be cash equivalents.
RESTRICTED CASH: Restricted cash is comprised of reserve accounts for capital
replacements, property taxes, and insurance. These restricted funds are subject
to supervision and approval by a lender or a government agency. The terms of the
contract with the government agency contain certain restrictions concerning
operating policies, rental charges, operating expenditures, distributions to
owners and other matters.
DEFERRED FINANCING COSTS: Costs incurred in obtaining long-term financing or
costs to buy down or hedge interest costs are deferred and amortized over the
term of the related debt agreements using the effective interest method.
REVENUE RECOGNITION: The Company leases apartment units to a diverse resident
base for terms of one year or less. Credit investigations are performed for all
prospective residents and security deposits are also obtained. Resident
receivables are evaluated for collectability each month. Rental revenue is
recognized on an accrual basis as it is earned over the life of the lease.
Interest income is recorded as earned.
INTEREST EXPENSE: Interest rates are substantially fixed for specified periods
through interest rate swaps and buy-down agreements for certain debt
instruments. These financial instruments are entered into as a hedge against the
interest exposure from variable rate debt. The differences paid or received on
swaps and related agreements are included in interest expense as yield
adjustments.
INCOME TAXES: The Company has elected to be taxed as a REIT and, as such, will
generally not be subject to federal and state income taxation at the corporate
level. To maintain its REIT status, the Company is required to distribute
annually at least 95% of its REIT taxable income to its shareholders and to
satisfy certain other requirements. Accordingly, no provision has been made for
federal income taxes in the accompanying statements of operations.
PER SHARE DATA: All earnings per share amounts for all periods reflect basic and
diluted earnings per share and have been restated from the previous standard of
primary and fully diluted earnings per share. See Note 10 for additional
information regarding basic and diluted earnings per share.
RECLASSIFICATIONS: Certain amounts in the 1996 and 1995 financial statements
have been reclassified to conform with financial statement presentations in
1997.
NOTE 3 -- MORTGAGES AND NOTES PAYABLE
TAX-EXEMPT MORTGAGE BOND FINANCINGS: In May 1995, the Company refinanced all
$324,816 of its outstanding tax-exempt mortgage debt. As a result of a new
30-year refunding agreement, which is backed by credit and liquidity support
from the Federal National Mortgage Association ("Fannie Mae"), the Company
obtained tax-exempt mortgage bond financings of $334,190 maturing in June 2025.
Standard & Poor's Rating Group assigned ratings of AAA/A-1+ to the bonds based
on the collateral agreement with Fannie Mae. In connection with the refinancing
transaction, the Company recorded an extraordinary charge of $23,427 to write
off deferred financing costs related to the debt that was refinanced.
The tax-exempt financings represent loans payable that are collateralized by
twenty-three properties with a net book value of $273,723 as of December 31,
1997. Monthly principal and interest payments are made to a trustee, which in
turn pays the bondholders when interest is due. The bonds are remarketed
periodically and bear interest at short-term floating rates. The floating rates
have been fixed through interest rate swap agreements. (See Interest Rate Swap
Agreements.) Principal payments are amortized over a 30-year period and are held
in a principal payment fund. The tax-exempt mortgage bond financings, before
giving effect to the swap agreements, had an average floating interest rate
inclusive of fees of 4.85% in December 1997.
CONVENTIONAL MORTGAGE FINANCINGS: Conventional mortgages are collateralized by
apartment communities having a net book value of $146,025 as of December 31,
1997. The mortgages are generally due in monthly installments and mature at
various dates through 2018. Prior to the Offering, interest rates were fixed at
rates which ranged from 7.75% to 9.63%, with a weighted average rate of 8.69%.
In connection with the Offering, the interest rates were adjusted to market
rates for specified periods of time and currently range from 6.31% to 8.30%. As
of December 31, 1997, the weighted average interest rate was 7.12%. Including
the amortization of deferred financing costs the all-in interest rate was 8.41%.
The interest reduction periods expire prior to or at the loan maturity dates and
range from 2000 to 2008.
14
<PAGE> 15
IRVINE APARTMENT COMMUNITIES, INC.
MORTGAGE NOTES PAYABLE TO THE IRVINE COMPANY: Two of the Company's apartment
communities are financed by mortgage notes payable to The Irvine Company. These
mortgage notes totaled $50,397 and $51,227 at December 31, 1997 and 1996,
respectively. The mortgage notes are collateralized by all-inclusive trust deeds
on each of the apartment communities financed. They bore fixed interest rates of
5.75% at December 31, 1997, are fully amortizing and mature in 2015 and 2024.
Interest incurred on the mortgage notes payable to The Irvine Company totaled
$2,920, $2,966 and $3,010 for the years ended December 31, 1997, 1996 and 1995,
respectively. The mortgage notes payable to The Irvine Company "wrap around"
secured first trust deed notes payable to third party financial institutions.
The secured first trust deed notes totaled $50,651 and $51,363 as of December
31, 1997 and 1996, respectively.
TAX-EXEMPT ASSESSMENT DISTRICT DEBT: In conjunction with the purchase of land,
the Company assumed $2,771 in 1996 and $4,184 in 1995 in tax-exempt assessment
district debt which represents debt issued by municipal government authorities
to finance the construction of infrastructure and improvements. The debt
obligations are repaid by the Company through assessments.
LINE OF CREDIT: In June 1997, the Operating Partnership renewed its $250 million
unsecured revolving credit facility. The credit facility has a term of three
years and currently bears interest at LIBOR plus 0.70% or prime. The interest
rates under the credit facility are adjusted up or down based on credit ratings
on the Operating Partnership's senior unsecured long-term indebtedness. Under
the credit facility, the Operating Partnership is able to borrow funds from the
participating banks through a competitive bid process to obtain a lower interest
rate. At December 31, 1997, there were no outstanding borrowings under the
credit facility priced on a competitive bid basis. Borrowings under the credit
facility, which are guaranteed by the Company, are available to finance the
Operating Partnership's ongoing rental property development, possible
acquisitions and for general working capital needs. The Company and the
Operating Partnership must comply with certain affirmative and negative
covenants, including limitations on distributions, and the maintenance of
certain net worth, cash flow and financial ratios. At December 31, 1997, the
Company and the Operating Partnership were in compliance with all of these
covenants. As of December 31, 1997, $75 million was outstanding and $175 million
was available under the credit facility. In January 1998, the outstanding
borrowings under the credit facility were repaid with the proceeds of the
preferred securities offering of the Trust as discussed in Note 14.
UNSECURED NOTES PAYABLE: In October 1997, the Operating Partnership issued $100
million aggregate principal amount of 7% senior unsecured notes (the "Notes")
pursuant to its shelf registration statement. The Notes are due on October 1,
2007. Net proceeds from the offering of $97.9 million were used to repay
indebtedness under the Operating Partnership's credit facility, which had been
used to finance The Villas of Renaissance acquisition. The Operating Partnership
was in compliance with all covenant requirements at December 31, 1997.
INTEREST RATE SWAP AGREEMENTS: The Company uses interest rate swap agreements to
effectively convert its floating rate tax-exempt mortgage bond financings to a
fixed-rate basis, thus reducing the impact on future income of fluctuations in
interest rates. At December 31, 1997, the Company had interest rate swap
agreements on notional amounts totaling $325,644 under which the Company pays
fixed rates of interest and receives floating rates of interest based on a
municipal bond index that is reset weekly. The swap agreements terminate from
2002 to 2007. The swap counterparties are all financial institutions rated AAA
by Standard & Poor's. The differences to be paid or received are accrued and
included in interest expense as a yield adjustment and the related amount
payable or receivable from counterparties is included in accrued liabilities or
other assets. Additionally, the Company restructured several interest rate swaps
related to the retired tax-exempt bonds in May 1995. These transactions reduce
the interest expense on tax-exempt mortgage bond financings by approximately 30
basis points per year through 2001. At December 31, 1997, the average fixed
interest rate paid to the counterparties was 5.09% and the average variable
interest rate received was 3.85%. This resulted in a net interest payable of
$317 which was settled in January 1998. Based on prevailing interest rates at
December 31, 1997, the interest rate swap agreements have a fair value of
negative $10.4 million.
CAPITALIZED INTEREST: The Company capitalizes interest on projects actively
under development using qualifying asset balances and applicable weighted
average interest rates. The average qualifying asset balance for projects under
development was approximately $76.6 million, $40.0 million and $82.9 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Interest
capitalized was $5,704, $3,151 and $6,779 in 1997, 1996 and 1995, respectively.
Interest incurred totaled $36,072, $32,657 and $32,673 for the years ended
December 31, 1997, 1996 and 1995, respectively.
OTHER MATTERS: Mortgages and notes payable totaling $527,683 are subject to
prepayment penalties.
15
<PAGE> 16
IRVINE APARTMENT COMMUNITIES, INC.
MORTGAGES AND NOTES PAYABLE AT DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Expiration of
Outstanding Effective Interest Rate Interest Rate
Principal Interest Reduction After Maturity
Type of Debt Balance Rate Period Step-Up Date
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond financings $325,644 5.28% n/a n/a 6/25
- -------------------------------------------------------------------------------------------------------------
Conventional mortgage financings:
Bayport 4,787 6.91% 7/08 9.25% 7/18
Bayview 3,456 6.91% 7/08 9.25% 7/18
Baywood 20,651 6.91% 7/08 9.25% 7/18
Deerfield Phase I 7,343 6.57% 7/02 8.90% 7/08
Mariner Square 5,542 6.32% 9/00 8.50% 8/08
The Parklands 6,102 6.15% n/a n/a 4/04
Parkwood 12,428 6.31% 8/00 8.50% 7/08
Promontory Point 35,682 8.30% n/a n/a 8/00
Rancho Mariposa 12,597 7.75% n/a n/a 6/03
San Paulo 1,458 4.00% n/a n/a 1/13
San Paulo 700 3.00% n/a n/a 1/08
Turtle Rock Vista 13,178 6.31% 8/00 8.50% 7/08
Woodbridge Pines 8,332 6.91% 9/08 9.25% 8/18
- --------------------------------------------------------------------------------------------------------------
132,256 7.12% 7/08
- --------------------------------------------------------------------------------------------------------------
Mortgage notes payable to The Irvine
Company:
Park West 33,631 5.75% n/a n/a 7/24
Rancho San Joaquin 16,766 5.75% n/a n/a 1/15
- --------------------------------------------------------------------------------------------------------------
50,397 5.75% 5/21
- --------------------------------------------------------------------------------------------------------------
Tax-exempt assessment district debt:
Fixed rate 5,390 6.27% n/a n/a 8/18
Variable rate 16,154 4.30% n/a n/a 6/17
- --------------------------------------------------------------------------------------------------------------
21,544 4.79% 5/18
- --------------------------------------------------------------------------------------------------------------
Line of credit 75,000 6.76% n/a n/a 6/00
- --------------------------------------------------------------------------------------------------------------
Unsecured notes payable 99,222 7.10% 10/07
- --------------------------------------------------------------------------------------------------------------
Total/weighted average $704,063 6.06% 7/16
==============================================================================================================
</TABLE>
SCHEDULED PRINCIPAL AMORTIZATION: MORTGAGES AND NOTES PAYABLE
AT DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Mortgage Tax-Exempt
Mortgage Conventional Notes Payable Assessment Unsecured Percentage
Bond Mortgage to The Irvine District Line of Notes Of
Year of Maturity Financings Financings Company Debt Credit Payable Totals Total Debt
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $ 3,876 $ 2,717 $ 879 $ 303 $7,775 1.1%
1999 4,165 2,958 931 326 8,380 1.2%
2000 4,478 36,754 986 522 $75,000 117,740 16.7%
2001 4,813 2,773 1,044 583 9,213 1.3%
2002 5,174 3,000 1,106 642 9,922 1.4%
Thereafter 303,138 84,054 45,451 19,168 $99,222 551,033 78.3%
- -------------------------------------------------------------------------------------------------------------------------
Total $325,644 $132,256 $50,397 $21,544 $75,000 $99,222 $704,063 100.0%
- -------------------------------------------------------------------------------------------------------------------------
Number of Loans 25 11 2 6 1 1 46
=========================================================================================================================
</TABLE>
16
<PAGE> 17
IRVINE APARTMENT COMMUNITIES, INC.
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for financial instruments
approximate their fair value except as discussed below. The fair values of the
conventional mortgage financings and the mortgage notes payable to The Irvine
Company are estimated using discounted cash flow analyses and the Company's
current estimated borrowing rates for similar types of borrowing arrangements.
The interest rate used in the fair value calculation ranges from 6.9% to 7.1%
based on the terms of the loan. As of December 31, 1997, the fair values of the
conventional mortgage financings and the mortgage notes payable to The Irvine
Company were $137,044 and $44,557, respectively. See Note 3 for a discussion of
the fair value of the interest rate swap agreements.
NOTE 5 -- EQUITY
In August 1995, the Company sold 5.175 million shares of common stock at $17.25
per share. Concurrently, The Irvine Company, pursuant to its rights under the
Operating Partnership Agreement, purchased 1.5 million limited partnership units
at $17.25 per unit. Such units are exchangeable for common stock on a one for
one basis, subject to adjustment and certain limitations. The net proceeds from
the two transactions totaled $109,329. Proceeds of $80,100 were used to repay
amounts outstanding under the Company's construction and revolving lines of
credit. The balance of $29,229 was used to fund new construction.
In July 1996, the Company completed the sale of 1.49 million shares of common
stock at $20.125 per share. The proceeds from this offering of $30.0 million
together with proceeds from the sale of newly issued limited partnership units
to The Irvine Company totaled $60.0 million. Proceeds were used to repay $43
million of debt outstanding under the revolving credit facility. The remaining
proceeds were used to fund ongoing development programs and for general
corporate purposes.
In February 1997, the Company sold 1.15 million shares of common stock at
$27.50 per share. Concurrently, The Irvine Company, pursuant to its rights under
the Operating Partnership Agreement, purchased 1.39 million additional limited
partnership units at $26.06 per unit (which is equal to the public offering
price of the common stock less an amount equivalent to the underwriting
discount) which are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations. The proceeds from the two
transactions totaled $66 million and were used to repay all indebtedness
outstanding under the credit facility and for general corporate purposes,
including ongoing development activities on and off the Irvine Ranch.
In May 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission providing for the issuance from time to time
of up to $350 million of common stock, preferred stock, and warrants to purchase
common stock and preferred stock. This registration statement replaced the
Company's previous registration statement. The Company plans to use the proceeds
raised from any securities issued under its shelf registration statement for
general corporate purposes, including the development of new apartment
communities, acquisitions and the repayment of existing debt. Availability under
the Company's shelf registration statement was $350 million at December 31,
1997. Concurrently, the Operating Partnership filed a shelf registration
statement with the Securities and Exchange Commission providing for the issuance
from time to time of up to $350 million of debt securities. The Operating
Partnership plans to use the proceeds raised from any securities issued under
its shelf registration statement for general corporate purposes, including the
development of new apartment communities, acquisitions and the repayment of
existing debt. Availability under the Operating Partnership's shelf registration
statement was $250 million at December 31, 1997.
17
<PAGE> 18
IRVINE APARTMENT COMMUNITIES, INC.
RECONCILIATION OF OPERATING PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
(in thousands, except percentages) Year Ended December 31, 1997 Year Ended December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
The Irvine The Irvine
Company Company Other Total Company Company Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 18,556 22,292 40,848 16,975 20,397 37,372
Stock options exercised and awards
issued 156 156 77 77
Dividend reinvestment plan and
additional cash investment plan 39 27 66 13 16 29
Common stock offerings and related
cash contributions from The Irvine
Company 1,150 1,394 2,544 1,491 1,491 2,982
Acquisition of Thompson Residential
assets 75 75
Contributions of property by
The Irvine Company and certain of
its affiliates 1,131 1,131 388 388
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of period 19,901 24,844 75 44,820 18,556 22,292 40,848
- ---------------------------------------------------------------------------------------------------------------------------
Ownership interest at end of period 44.4% 55.4% 0.2% 100% 45.4% 54.6% 100%
===========================================================================================================================
</TABLE>
The following tables represent a reconciliation of the minority interest
balances and the computation of the minority interest in income (loss).
RECONCILIATION OF MINORITY INTEREST
<TABLE>
<CAPTION>
For the Year Ended
December 31,
(dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $140,327 $109,133
Minority interest in income 32,179 22,446
Distributions (35,203) (30,579)
Cash contributions 36,333 30,000
Contributions of property by The Irvine Company and certain of its affiliates 33,905 8,973
Acquisition of Thompson Residential assets 2,000
Contributions under dividend reinvestment plan
and additional cash investment plan 766 354
- -----------------------------------------------------------------------------------------------------------
Balance at end of period $210,307 $140,327
===========================================================================================================
</TABLE>
COMPUTATION OF MINORITY INTEREST IN INCOME (LOSS)
<TABLE>
<CAPTION>
For the Year Ended December 31,
(dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before minority interest $58,583 $41,192 $1,629
Specific allocations to
The Irvine Company 17,741
- ----------------------------------------------------------------------------------------------------------
Income before specific allocations 58,583 41,192 19,370
Income allocated to the Company
based on its ownership interest (26,404) (18,746) (8,465)
- ----------------------------------------------------------------------------------------------------------
Income allocated to
The Irvine Company and certain of its affiliates based on
their ownership interest 32,088 22,446 10,905
Income allocated to TRC based on its ownership interest 91
Specific allocations to
The Irvine Company (17,741)
- -----------------------------------------------------------------------------------------------------------
Minority interest in income (loss) $32,179 $22,446 $(6,836)
===========================================================================================================
</TABLE>
Prior to December 31, 1995, the Company incurred debt extinguishment costs
and swap amortization costs that were allocated 100% to The Irvine Company in
accordance with the Operating Partnership Agreement. As of December 31, 1995,
all such allocations have been completed.
18
<PAGE> 19
IRVINE APARTMENT COMMUNITIES, INC.
NOTE 6 -- ACQUISITION OF THOMPSON RESIDENTIAL ASSETS
In February 1997, the assets of Thompson Residential Company, Inc. ("TRC"), a
privately held, Northern California-based multi-family development company were
acquired for $2 million which was paid by the issuance of 74,523 limited
partnership units (exchangeable for common stock of the Company), using the
average closing price of the Company's common stock for the ten trading days
preceding the acquisition's closing date. In addition, TRC may be paid up to an
additional $2 million in cash or limited partnership units if an apartment
community (The Hamptons) achieves certain performance targets.
NOTE 7 -- ACQUISITION OF THE VILLAS OF RENAISSANCE
In June 1997, the Operating Partnership acquired a 923-unit apartment community
(The Villas of Renaissance) located in the La Jolla region of north San Diego
County from an unrelated third party for $127 million. The purchase price was
funded by $118 million of borrowings under the Operating Partnership's $250
million unsecured revolving credit facility and $9 million from cash on hand.
NOTE 8 -- LAND RIGHTS AGREEMENT WITH THE IRVINE COMPANY
The Company and The Irvine Company are parties to an exclusive land rights and
non-competition agreement (the "Land Rights Agreement"). This agreement, which
extends through July 31, 2020, provides the Company the exclusive right, but not
the obligation, to acquire additional land sites which have been entitled for
residential use and designated by The Irvine Company as ready for apartment
development in accordance with the Master Plan. The determination to exercise an
option with respect to a site is made solely by a majority of a committee of
independent directors of the Company (the "Independent Directors Committee"),
whose members are unaffiliated with The Irvine Company. In addition, The Irvine
Company and its chairman, Donald Bren, have agreed to conduct their apartment
community development and ownership activities on the Irvine Ranch solely
through the Company.
Under terms of the Land Rights Agreement, through July 31, 2000, the purchase
price for any apartment community sites acquired may be paid with either cash,
common stock or Operating Partnership units at the option of the Company. After
July 31, 2000, the choice of consideration will revert to The Irvine Company.
NOTE 9 -- CERTAIN TRANSACTIONS WITH RELATED PARTIES
Included in general and administrative expenses are charges from The Irvine
Company pursuant to an administrative service agreement covering services for
risk management, income taxes, human resources and other services of $132 for
the year ended December 31, 1997. The amounts for the corresponding periods in
1996 and 1995 were $108 and $106, respectively. The Irvine Company and the
Company jointly purchase employee health care insurance and property and
casualty insurance. In addition, the Company incurred rent totaling $384, $349
and $270 for the years ended December 31, 1997, 1996 and 1995, respectively,
related to leases with The Irvine Company that expire in 1998. For the years
ended December 31, 1997 and 1996, The Irvine Company contributed $766 and $354,
respectively, or the maximum allowable in connection with stock issuances under
the dividend reinvestment and additional cash investment plan.
In March 1995, the Company acquired a 512-unit development site known as
Newport Ridge for $9,542 from The Irvine Company, pursuant to the Land Rights
Agreement between the Company and The Irvine Company. The Company's board
committee of independent directors approved the purchase in accordance with the
Land Rights Agreement. As partial financing for the acquisition of the site, the
Company elected to assume $4,184 of tax-exempt assessment district debt. The
balance of $5,358 was paid through the issuance of 336,432 additional limited
partnership units in the Operating Partnership to The Irvine Company. The
limited partnership units are exchangeable for common stock on a one for one
basis, subject to adjustment and certain limitations.
In November 1995, the Company acquired a 300-unit development site known as
Baypointe from The Irvine Company, pursuant to the Land Rights Agreement between
the Company the The Irvine Company. The total purchase price paid was $4,190, of
which $2,223 was cash and $1,967 was paid through the issuance of 113,372
additional limited partnership units in the Operating Partnership to The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. The limited partnership
units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations.
In March 1996, the Company acquired a development site known as Santa Maria
for $3.3 million from The Irvine Company for the development of 227 rental
units, pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. As partial financing for
the site acquisition, the Company assumed $2.8 million in tax-exempt assessment
district debt. The balance of the
19
<PAGE> 20
IRVINE APARTMENT COMMUNITIES, INC.
purchase price was paid through the issuance of 28,358 additional limited
partnership units in the Operating Partnership to The Irvine Company. The
limited partnership units are exchangeable for common stock on a one for one
basis, subject to adjustment and certain limitations.
Concurrent with the Company's common stock offering in July 1996, The Irvine
Company, pursuant to its rights under the Operating Partnership Agreement,
purchased 1.49 million limited partnership units at a price of $20.125 per unit
(which is equal to the public offering price of common stock less an amount
equivalent to the underwriting discount) or a total of $30.0 million. These
units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations.
In July 1996, the Company acquired a development site known as The Colony for
$3.5 million from The Irvine Company for the development of 245 rental units
pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. Of the total purchase
price, $2.4 million was paid through the issuance of 115,544 additional limited
partnership units in the Operating Partnership to The Irvine Company. The
limited partnership units are exchangeable for common stock on a one for one
basis, subject to adjustment and certain limitations.
In December 1996, the Company acquired a development site known as Santa Rosa
II for $6.0 million from The Irvine Company for the development of 207 rental
units pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. The purchase price was
paid through the issuance of 244,857 additional limited partnership units in the
Operating Partnership to The Irvine Company. The limited partnership units are
exchangeable for common stock on a one for one basis, subject to adjustment and
certain limitations.
In February 1997, the Company acquired a development site known as Rancho
Santa Fe for $8.4 million from The Irvine Company for the development of 316
rental units pursuant to the Land Rights Agreement between the Company and The
Irvine Company. The Company's board committee of independent directors approved
the purchase in accordance with the Land Rights Agreement. The purchase price
was paid through the issuance of 313,439 additional limited partnership units in
the Operating Partnership to The Irvine Company. The limited partnership units
are exchangeable for common stock on a one for one basis, subject to adjustment
and certain limitations. Pursuant to the terms of the acquisitions, a portion of
the limited partnership units in the Operating Partnership are subject to
forfeiture if the apartment community developed on the site does not achieve a
10% unleveraged return on costs for the first twelve months following stabilized
occupancy.
Concurrent with the Company's common stock offering in February 1997, The
Irvine Company, pursuant to its rights under the Operating Partnership
Agreement, purchased 1.39 million limited partnership units at a price of $26.06
per unit (which is equal to the public offering price of the common stock less
an amount equivalent to the underwriting discount) or a total of $36.2 million.
These units are exchangeable for common stock on a one for one basis, subject to
adjustment and certain limitations.
In October 1997, the Company acquired a development site known as Sonoma for
$5.7 million from The Irvine Company for the development of 196 rental units
pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. The purchase price was
paid through the issuance of 179,433 additional limited partnership units in the
Operating Partnership to the Irvine Company. The limited partnership units are
exchangeable for common stock on a one for one basis, subject to adjustment and
certain limitations. Pursuant to the terms of the acquisition, a portion of the
limited partnership units in the Operating Partnership are subject to forfeiture
if the apartment community developed on the site does not achieve a 10%
unleveraged return on costs for the first twelve months following stabilized
occupancy.
In December 1997, the Company acquired a development site known as
Stonecrest, located in San Diego County, for $9.5 million from an affiliate of
The Irvine Company for the development of 326 rental units. The Company's board
committee of independent directors approved the purchase. The purchase price was
paid through the issuance of 305,707 additional limited partnership units in the
Operating Partnership to an affiliate of The Irvine Company. Of the limited
partnership units issued, 199,011 are exchangeable for common stock on a one for
one basis and 106,696 limited partnership units are not exchangeable for common
stock absent approval of the shareholders of the Company.
In December 1997, the Company acquired a development site known as Brittany
for $10.3 million from The Irvine Company for the development of 393 rental
units pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. The purchase price was
paid through the issuance of 332,060 additional limited partnership units in the
Operating Partnership to The Irvine
20
<PAGE> 21
IRVINE APARTMENT COMMUNITIES, INC.
Company. The limited partnership units are exchangeable for common stock on a
one for one basis, subject to adjustment and certain limitations.
One of the Company's directors is chairman of a bank which participates in
the Operating Partnership's credit facility. Based on the bank's percentage
participation in the credit facility, the Company estimates that the amount of
interest and fees paid to the bank totaled $279, $245 and $388 in 1997, 1996 and
1995, respectively.
NOTE 10 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share which have been restated to comply with the new accounting requirements:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
For the years ended
December 31,
(in thousands, except per share data) 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings per share -
Net income $26,404 $18,746 $8,465
Effect of dilutive securities:
Minority interest in loss (6,836)
----------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share -
Income available to common shareholders after effect of
dilutive securities $26,404 $18,746 $1,629
==========================================================================================================
Denominator:
Denominator for basic earnings per share-weighted average
shares outstanding 19,656 17,732 13,856
Effective of dilutive securities:
Stock plans 137 151 28
Convertible limited partnership units in the Operating
Partnership 19,335
----------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -
adjusted weighted-average shares after effect of
dilutive securities 19,793 17,883 33,219
==========================================================================================================
Basic earnings per share:
Income before extraordinary item and minority interest $0.84
Extraordinary item - charge related to debt extinguishment (0.23)
----------------------------------------------------------------------------------------------------------
Basic Earnings Per Share $1.34 $1.06 $0.61
==========================================================================================================
Diluted earnings per share:
Income before extraordinary item and minority interest in
loss $0.75
Extraordinary item - charge related to debt extinguishment (0.70)
----------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $1.33 $1.05 $0.05
==========================================================================================================
</TABLE>
Options to purchase 51,000 and 170,000 shares of common stock were outstanding
during 1997 and 1995, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common shares and, therefore, the effect would
be antidilutive. Convertible limit partner units totaling 23,930,000 and
21,221,000 were outstanding during 1997 and 1996, respectively, but were not
included in the computation of diluted earnings per share because the effect
would be antidilutive.
In January 1998, the Trust issued 6.0 million of 8-1/4% Series A Preferred
Securities. The proceeds were used to purchase an equivalent amount of 8-1/4%
Series A Preferred Limited Partner Units in the Operating Partnership. Income
will be allocated to the Series A Preferred Limited Partner Unit Holders at an
annual rate of 8-1/4%.
21
<PAGE> 22
IRVINE APARTMENT COMMUNITIES, INC.
NOTE 11 -- STOCK PLANS
EMPLOYEE STOCK OPTION PLAN: The Company has adopted long term stock incentive
plans that provide for awards of non-qualified or incentive stock options, stock
appreciation rights, performance awards, restricted stock, restricted stock
units and stock unit awards. The plans limit the number of shares of common
stock to be issued with respect to these awards to 5% of the total partnership
units and common stock outstanding from time to time. The non-qualified stock
options in the table below vest in equal installments over a three-year period
from the date of grant and expire ten years from the grant dates.
NON-QUALIFIED STOCK OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Number Exercise price
of Options Per share
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 189,000 $17.50
Granted 384,000 $15.88 to $16.13
Canceled (74,000) $16.13 to $17.50
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 499,000 $15.88 to $17.50
Granted 10,000 $20.00
Exercised (66,667) $16.13 to $17.50
Canceled (33,333) $16.13
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 409,000 $15.88 to $20.00
Granted 265,000 $26.63 to $29.81
Exercised (139,666) $15.88 to $17.50
Canceled (95,001) $15.88 to $26.88
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 439,333 $15.88 to $29.81
============================================================================================================
Vested and exercisable at December 31, 1997 122,665 $16.13 to $20.00
============================================================================================================
</TABLE>
The restricted stock awards of the Company's President and Chief Executive
Officer vest over five years. The restricted stock performance awards issued to
other officers vest over a five-year period provided that the Company meets
certain financial targets.
PERFORMANCE AWARD TRANSACTIONS
<TABLE>
<CAPTION>
Number of Awards
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1994 200,000
Granted 235,000
Canceled (110,000)
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 325,000
Granted 10,000
Issued (20,000)
Canceled (82,049)
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 232,951
Granted 96,500
Issued (62,951)
Canceled (105,710)
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 160,790
============================================================================================================
Vested at December 31, 1997 17,290
============================================================================================================
</TABLE>
The total number of shares available to be granted at December 31, 1997 under
these plans was 1,369,639.
DIRECTORS' STOCK OPTION PLAN: The 1993 Stock Option Plan for Directors was
established with 100,000 shares that may be granted to independent directors.
Grants of fully vested options to purchase 5,000 shares of common stock at the
market price on the grant date were made to each independent director
immediately following the Offering. Additionally, grants of fully vested options
to purchase 1,000 shares of common stock at the market price on the grant date
were made to each independent director immediately following each annual
shareholders' meeting beginning in 1995. These options are fully vested when
granted and are exercisable for ten years from the grant dates.
22
<PAGE> 23
IRVINE APARTMENT COMMUNITIES, INC.
DIRECTORS' OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Number Exercise Price
of Options Per Share
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 25,000 $17.44
Granted 5,000 $15.63
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 30,000 $15.63 to $17.44
Granted 5,000 $20.06
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 35,000 $15.63 to $20.06
Granted 5,000 $26.75
Exercised (7,000) $15.63 to $20.06
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 33,000 $15.63 to $26.75
============================================================================================================
Available for future grant 60,000
============================================================================================================
</TABLE>
EQUITY COMPENSATION PLANS: The Company applies APB Opinion 25 and related
interpretations in accounting for its equity compensation plans as described
above. Accordingly, no compensation cost has been recognized for its stock
option plans. Compensation cost for the Company's other stock-based compensation
plans has been determined utilizing the fair value of the award over the service
period. Had the Company applied FAS Statement 123 for stock-based compensation
it would result in net income and earnings per share amounts that approximate
the amounts reported. Under FAS Statement 123 the fair value for options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.43%, 6.46%, and 7.15%; dividend
yields of 5.27%, 7.09% and 8.49%; volatility factors of the expected market
price of the Company's common stock of 0.184, 0.204 and 0.242; and a weighted
average expected life of the options of 7 years.
NOTE 12 -- SAVINGS PLAN
Effective January 1, 1994, the Company implemented a defined contribution 401(k)
benefit plan covering substantially all employees who have satisfied minimum age
and service requirements. The Company matches employee contributions up to 50%,
within certain limits, which are accrued as incurred. The Company also makes
contributions to this plan for each participant, generally equal to 3% of the
participant's base salary. The aggregate cost of these contributions by the
Company was $125, $122 and $95 in 1997, 1996 and 1995, respectively.
NOTE 13 -- AGREEMENTS, COMMITMENTS AND CONTINGENCIES
MANAGEMENT AGREEMENTS: The Company has management agreements with unaffiliated
property management companies to maintain and manage the operations of the
properties. Management fees range from 2.5% to 3.25% of revenues depending on
the size of the property (resulting in a weighted average rate of approximately
2.8% of revenues). These agreements are renewable annually and are generally
cancelable on 30 days' notice. Included in operating expenses are costs incurred
by the management companies on behalf of the Company.
LITIGATION: The Company is party to various legal actions which are incidental
to its business. Management believes that these actions will not have a material
adverse effect on the Company's consolidated financial position.
ASSESSMENT DISTRICTS: In some of the local jurisdictions within Orange County
where the Predecessor developed property, assessment districts were formed by
local governments to finance major infrastructure improvements. At December 31,
1997, the Company had $38.1 million of assessment district debt, of which $21.5
million was reflected in the balance sheet.
EXCHANGE RIGHTS: The Irvine Company and certain of its affiliates have the right
to exchange up to one-third of the total common limited partner units owned by
them for shares of common stock in each twelve-month period commencing on
December 8 of each year at an exchange ratio of one to one, subject to
adjustment in certain events. These exchanges are subject to certain
restrictions including percentage ownership limits.
COMPANY'S OBLIGATION TO PURCHASE TENDERED OPERATING PARTNERSHIP UNITS: The
Irvine Company and certain of its affiliates have the right to sell to the
Company for cash generally up to one-third of its common limited partner units
in each twelve-month period commencing on December 8 of each year. These sales
are subject to certain restrictions. The Company is to purchase the tendered
interests at a purchase price equal to the average of the daily market prices
for the common stock of the Company for the ten
23
<PAGE> 24
IRVINE APARTMENT COMMUNITIES, INC.
consecutive trading days immediately preceding the date of receipt by the
Company of a notice of cash tender. The Company is to pay for these interests
solely with the net proceeds of an offering of the Company's common stock. The
Company and certain of its affiliates would bear the costs of sale (other than
underwriting discounts and commissions). The Irvine Company and certain of its
affiliates would bear all market risk if the market price at closing was less
than the purchase price as determined on the date of tender. Any proceeds of the
offering in excess of the purchase price would be for the sole benefit of the
Company.
RENT RESTRICTIONS: As of December 31, 1997, 18.5% of the apartment units within
the Company's portfolio were required to be set aside for residents within
certain income levels and had limitations on the rent that could be charged to
such tenants. The rental revenue from five of these projects includes
governmental rent subsidy payments of $3,903, $3,977 and $4,023 for the years
ended December 31, 1997, 1996 and 1995, respectively.
NOTE 14 -- IAC CAPITAL TRUST (UNAUDITED)
In January 1998, IAC Capital Trust issued 6.0 million of 8-1/4% Series A
Preferred Securities. The proceeds of $150 million were used to purchase an
equivalent amount of 8-1/4% Series A Preferred Limited Partner Units in the
Operating Partnership. The Operating Partnership used the $150 million of
proceeds, net of costs and offering expenses, all of which were paid by the
Operating Partnership, to repay the outstanding balance on the Operating
Partnership's credit facility and to fund development.
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
All 1996 quarters and the first three quarters of 1997 have been restated to
comply with the new accounting requirements regarding earnings per share.
<TABLE>
<CAPTION>
(dollars in thousands, except per share data)
1997 Quarters Ended March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $43,280 $44,673 $48,913 $50,079
Expenses 29,761 29,583 34,567 34,451
Net income 6,111 6,809 6,479 7,005
Basic earnings per share $0.32 $0.34 $0.33 $0.35
Diluted earnings per share $0.32 $0.34 $0.33 $0.35
============================================================================================================
1996 Quarters Ended March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------
Revenues $37,089 $38,967 $40,680 $41,962
Expenses 28,401 29,811 29,619 29,675
Net income 3,947 4,158 5,043 5,598
Basic earnings per share $0.23 $0.24 $0.27 $0.30
Diluted earnings per share $0.23 $0.24 $0.27 $0.30
============================================================================================================
</TABLE>
24
<PAGE> 25
IRVINE APARTMENT COMMUNITIES, INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To The Board of Directors and Shareholders
Irvine Apartment Communities, Inc.
We have audited the accompanying consolidated balance sheets of Irvine
Apartment Communities, Inc. (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
---------------------------------------
Newport Beach, California
January 30, 1998
25
<PAGE> 26
IRVINE APARTMENT COMMUNITIES, INC.
PROPERTY INFORMATION - STABILIZED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 Average Monthly
Rental Rates
--------------------
1997
Average Per Average
Year Number of Unit Size Square Physical
Property Completed Units (Square Feet) Per Unit Foot Occupancy
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Properties Stabilized for all of 1997:
- ----------------------------------------------------------------------------------------------------------------
Irvine, CA (35 Properties)
Amherst Court 1991 162 724 $1,023 $1.41 93.5%
Berkeley Court 1986 152 877 1,076 1.23 92.8%
Cedar Creek 1985 176 811 972 1.20 96.1%
Columbia Court 1984 58 852 1,014 1.19 95.8%
Cornell Court 1984 109 894 1,097 1.23 90.6%
Cross Creek 1985 136 935 1,029 1.10 95.3%
Dartmouth Court 1986 294 896 1,100 1.23 93.1%
Deerfield 1975/83 192/96 847 936 1.11 95.8%
Harvard Court 1986 112 826 1,036 1.25 92.4%
Northwood Park 1985 168 944 967 1.02 95.2%
Northwood Place 1986 604 954 968 1.01 94.3%
Orchard Park 1982 60 971 1,009 1.04 99.5%
Park West 1970/71/72 256/276/348 1,004 1,000 1.00 92.9%
Parkwood 1974 296 883 983 1.11 93.2%
Rancho San Joaquin 1976 368 896 1,030 1.15 95.5%
San Carlo 1989 354 1,074 1,219 1.14 95.8%
San Leon 1987 248 951 1,077 1.13 93.5%
San Marco 1988 426 923 1,019 1.10 93.8%
San Marino 1986 200 927 1,044 1.13 94.7%
San Mateo 1990 283 720 977 1.36 96.6%
San Paulo 1993 382 1,001 991 0.99 92.7%
San Remo 1986/88 136/112 966 1,039 1.08 92.9%
Santa Clara 1 1996 378 967 1,234 1.28 94.5%
Santa Rosa 1 1996 368 895 1,166 1.30 94.9%
Stanford Court 1985 320 799 1,013 1.27 94.4%
The Parklands 1983 121 794 1,135 1.43 99.9%
Turtle Rock Canyon 1991 217 1,024 1,295 1.26 96.4%
Turtle Rock Vista 1976/77 112/140 1,155 1,250 1.08 94.9%
Villa Coronado1 1996 513 929 1,218 1.31 93.9%
Windwood Glen 1985 196 878 976 1.11 96.5%
Windwood Knoll 1983 248 903 948 1.05 95.3%
Woodbridge Oaks 1983 120 976 1,073 1.10 99.8%
Woodbridge Pines 1976 220 872 1,005 1.15 93.3%
Woodbridge Villas 1982 258 871 966 1.11 93.6%
Woodbridge Willows 1984 200 894 993 1.11 94.5%
- ----------------------------------------------------------------------------------------------------------------
Subtotal 9,415 924 1,056 1.14 94.4%
- ----------------------------------------------------------------------------------------------------------------
Newport Beach, CA (7 Properties)
Bayport 1971 104 867 1,055 1.22 96.4%
Bayview 1971 64 1,154 1,292 1.12 96.4%
Baywood 1973/84 320/68 1,074 1,182 1.10 94.6%
Mariner Square 1969 114 1,104 1,167 1.06 96.0%
Newport North 1986 570 947 1,111 1.17 94.8%
Newport Ridge1 1996 512 957 1,423 1.49 94.8%
Promontory Point 1974 520 1,056 1,664 1.58 94.1%
- ----------------------------------------------------------------------------------------------------------------
Subtotal 2,272 1,006 1,325 1.32 94.8%
- ----------------------------------------------------------------------------------------------------------------
Tustin, CA (6 Properties)
Rancho Alisal 1988/91 344/12 967 1,021 1.06 94.4%
Rancho Maderas 1989 266 939 1,075 1.14 93.5%
Rancho Mariposa 1992 238 856 1,025 1.20 95.6%
Rancho Monterey1 1996 436 932 1,212 1.30 95.0%
Rancho Tierra 1989 252 1,031 1,122 1.09 94.9%
Sierra Vista 1992 306 852 1,085 1.27 96.3%
- ----------------------------------------------------------------------------------------------------------------
Subtotal 1,854 930 1,099 1.18 94.9%
- ----------------------------------------------------------------------------------------------------------------
Total Properties Stabilized for all of 1997 13,541 939 1,107 1.18 94.6%
- ----------------------------------------------------------------------------------------------------------------
Properties Stabilized or Acquired During
1997:
Santa Maria (Irvine)2 1997 227 1,125 1,446 1.29 95.3%
Baypointe (Newport Beach)2 1997 300 1,037 1,410 1.36 96.6%
Villas of Renaissance (San Diego County)2 1992 923 957 1,226 1.28 89.8%
- ----------------------------------------------------------------------------------------------------------------
Total Properties Stabilized or Acquired During 1,450 1,000 1,298 1.30 92.0%
1997
- ----------------------------------------------------------------------------------------------------------------
Total Stabilized Portfolio 14,991 945 $1,116 $1.18 94.5%
================================================================================================================
</TABLE>
1 Represents property stabilized during 1996.
2 Represents amounts from initial stabilization date or acquisition date
26
<PAGE> 27
IRVINE APARTMENT COMMUNITIES, INC.
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
DONALD BREN(1)
Chairman
Irvine Apartment Communities, Inc.
and The Irvine Company
ANTHONY M. FRANK(2),(3)
Chairman
Acrogen, Inc.
JOHN F. GRUNDHOFER(2),(3)
Chairman, President and
Chief Executive Officer
First Bank System, Inc.
BOWEN H. MCCOY(1),(3),(4)
President
Buzz McCoy Associates, Inc.
WILLIAM H. MCFARLAND(1)
President and Chief Executive Officer
Irvine Apartment Communities, Inc.
MICHAEL D. MCKEE(1)
Executive Vice President
and Chief Financial Officer
The Irvine Company
JACK W. PELTASON(2),(3)
Retired President
University of California
JOHN F. SEYMOUR, JR.(3),(4)
Chief Executive Officer
Southern California Housing
Development Corporation
RAYMOND L. WATSON(1)
Vice Chairman of the Board
The Irvine Company
(1) Executive Committee Member
(2) Audit Committee Member
(3) Independent Directors Committee Member
(4) Compensation Committee Member
27
<PAGE> 28
IRVINE APARTMENT COMMUNITIES, INC.
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
OFFICERS
WILLIAM H. MCFARLAND
President and
Chief Executive Officer
RICHARD E. LAMPRECHT
Senior Vice President,
President, Irvine Ranch Division
JAMES E. MEAD
Senior Vice President,
Chief Financial Officer
and Secretary
WILLIAM W. THOMPSON
Senior Vice President,
President, California Division
HANK BAKER
Vice President,
Marketing
BRUCE N. DORFMAN
Vice President, Development
California Division
SHAWN HOWIE
Vice President, Corporate
Finance and Controller
ROBERT J. HUGHES
Vice President, Construction
California Division
DAVID A. MCALLISTER
Vice President, Construction
Irvine Ranch Division
KEVIN P. PAYNE
Vice President, Development
Irvine Ranch Division
SCOTT A. REINERT
Vice President,
Operations
28
<PAGE> 29
IRVINE APARTMENT COMMUNITIES, INC.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
CORPORATE HEADQUARTERS
Irvine Apartment Communities, Inc.
550 Newport Center Drive, Suite 300
Newport Beach, California 92660-7011
Telephone: (714) 720-5500
Fax: (714) 720-5550
NORTHERN CALIFORNIA OFFICE
591 Redwood Highway, Suite 5275
Mill Valley, California 94941
Telephone: (415) 381-3001
Fax: (415) 381-3046
TRANSFER AGENT - IAC
For Common Shareholders:
Boston EquiServe, L.P.
P. O. Box 8040
Boston, Massachusetts 02266-8040
(800) 733-5001
TRANSFER AGENT - IAC CAPITAL TRUST
For Preferred Security Holders:
The Bank of New York
101 Barclay Street
New York, New York 10286
(212) 815-6286
STOCK EXCHANGE LISTING
The Company's common stock is listed on the New York and Pacific Stock Exchanges
under the ticker symbol: IAC. IAC Capital Trust's preferred securities are
listed on the New York Stock Exchange under the ticker symbol: IAC Pr A.
ANNUAL SHAREHOLDERS' MEETING
The Company's annual shareholders' meeting will be held at the Hyatt Regency
Irvine Hotel in Irvine, California, at 10:00 a.m. on Thursday, May 7, 1998.
FORM 10-K
The Company's Form 10-K, filed with the Securities and Exchange Commission, may
be obtained without charge by writing to the Investor Relations Department.
DIVIDEND REINVESTMENT AND ADDITIONAL CASH INVESTMENT PLAN
Shareholders may automatically reinvest their dividends or make periodic cash
investments in additional shares of the Company's common stock under this plan.
For additional information and enrollment materials, please contact Boston
EquiServe, L.P. at (800) 733-5001.
29
<PAGE> 30
IRVINE APARTMENT COMMUNITIES, INC.
COMMON STOCK CLOSING PRICES ON THE
NEW YORK STOCK EXCHANGE
<TABLE>
<CAPTION>
Period High Low
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997:
Fourth Quarter $33.500 $29.750
Third Quarter 33.375 28.250
Second Quarter 30.000 25.625
First Quarter 29.375 24.875
- ------------------------------------------------------------------------------------------------------------
1996:
Fourth Quarter 25.000 22.125
Third Quarter 23.375 20.250
Second Quarter 20.625 19.000
First Quarter 21.000 18.750
============================================================================================================
</TABLE>
DISTRIBUTIONS
<TABLE>
<CAPTION>
Distribution Type for
Federal Income Tax
Tax Purposes
--------------------------------------
Cash Distribution Taxable Return of
Payable Date Per Share Income Capital
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11/26/97 $ 0.375 91% 9%
8/29/97 0.375 91% 9%
5/30/97 0.365 91% 9%
2/28/97 0.365 91% 9%
11/27/96 0.365 82% 18%
8/30/96 0.365 82% 18%
5/31/96 0.355 82% 18%
2/29/96 0.355 82% 18%
11/30/95 0.355 25% 75%
8/31/95 0.355 25% 75%
5/31/95 0.340 25% 75%
2/28/95 0.340 25% 75%
11/30/94 0.340 28% 72%
8/31/94 0.340 28% 72%
5/31/94 0.340 28% 72%
2/28/94 0.090 28% 72%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF IRVINE APARTMENT COMMUNITIES, INC.
<TABLE>
<CAPTION>
State of Incorporation
Subsidiary or Organization
- -------------------------------------------------------------------------------
<S> <C>
Irvine Apartment Communities, L.P. Delaware
San Rafael Apartment Limited Partnership California
IAC Management, Inc. California
</TABLE>
<PAGE> 1
EXHIBIT 21.2
SUBSIDIARIES OF IRVINE APARTMENT COMMUNITIES, L.P.
<TABLE>
<CAPTION>
State of Incorporation
Subsidiary or Organization
- --------------------------------------------------------------------------------
<S> <C>
San Rafael Apartment Limited Partnership California
</TABLE>
<PAGE> 1
IRVINE APARTMENT COMMUNITIES, INC.
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE III
----------------------------------------------
Exhibit 23.1
Our audits also included the financial statement schedule listed in Item 14.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG, LLP
-----------------------------------
Newport Beach, California
January 30, 1998
<PAGE> 1
IRVINE APARTMENT COMMUNITIES, INC.
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
Exhibit 23.2
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Irvine Apartment Communities, Inc. of our reports dated January 30, 1998
with respect to the consolidated financial statements and related financial
statement schedule of Irvine Apartment Communities, Inc., included in the
December 31, 1997 Annual Report to Shareholders of Irvine Apartment
Communities, Inc.
We also consent to the incorporation by reference of our reports dated January
30, 1998 with respect to the consolidated financial statements and related
financial statement schedule of Irvine Apartment Communities, Inc., in the
Registration Statement (Form S-8) pertaining to the Irvine Apartment
Communities, Inc. 1993 Stock Option Plan for Directors, in the Registration
Statement (Form S-8) pertaining to the Irvine Apartment Communities, Inc.
1993 Long-Term Stock Incentive Plan, and in the Registration
Statement (Form S-3) pertaining to the Irvine Apartment Communities, Inc.
registration of $350,000,000 of Debt Securities, Preferred Stock, Common Stock
and Warrants.
/s/ ERNST & YOUNG, LLP
-----------------------------------
Newport Beach, California
March 27, 1998
<PAGE> 1
IRVINE APARTMENT COMMUNITIES, L.P.
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
Exhibit 23.3
We consent to the use of our report dated January 30, 1998 with respect to the
consolidated financial statements and related financial statement schedule of
Irvine Apartment Communities, L.P., included in this Annual Report (Form 10-K)
of Irvine Apartment Communities, L.P.
We also consent to the incorporation by reference of our report dated January
30, 1998 with respect to the consolidated financial statements and related
financial statement schedule of Irvine Apartment Communities, L.P. in the
Registration Statement (Form S-3) pertaining to the Irvine Apartment
Communities, L.P. registration of $350,000,000 of Debt Securities.
/s/ ERNST & YOUNG, LLP
-----------------------------------
Newport Beach, California
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0000912084
<NAME>IRVINE APARTMENT COMMUNITIES, INC. - 1997
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,624
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,224,383
<DEPRECIATION> 248,245
<TOTAL-ASSETS> 1,163,677
<CURRENT-LIABILITIES> 0
<BONDS> 704,063
0
0
<COMMON> 199
<OTHER-SE> 210,721
<TOTAL-LIABILITY-AND-EQUITY> 1,163,677
<SALES> 0
<TOTAL-REVENUES> 186,945
<CGS> 0
<TOTAL-COSTS> 88,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,368
<INCOME-PRETAX> 58,583
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,404
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0000912084
<NAME>IRVINE APARTMENT COMMUNITIES, INC. - 1996 REVISED
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,205
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,025,994
<DEPRECIATION> 219,193
<TOTAL-ASSETS> 900,998
<CURRENT-LIABILITIES> 0
<BONDS> 553,064
0
0
<COMMON> 186
<OTHER-SE> 179,831
<TOTAL-LIABILITY-AND-EQUITY> 900,998
<SALES> 0
<TOTAL-REVENUES> 158,698
<CGS> 0
<TOTAL-COSTS> 79,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,506
<INCOME-PRETAX> 41,192
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,746
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0000912084
<NAME>IRVINE APARTMENT COMMUNITIES, INC. - 1995 REVISED
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,392
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 931,906
<DEPRECIATION> 192,106
<TOTAL-ASSETS> 853,230
<CURRENT-LIABILITIES> 0
<BONDS> 563,286
0
0
<COMMON> 170
<OTHER-SE> 155,263
<TOTAL-LIABILITY-AND-EQUITY> 853,230
<SALES> 0
<TOTAL-REVENUES> 136,168
<CGS> 0
<TOTAL-COSTS> 70,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,894
<INCOME-PRETAX> 25,056
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,056
<DISCONTINUED> 0
<EXTRAORDINARY> 23,427
<CHANGES> 0
<NET-INCOME> 8,465
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0000912084
<NAME>IRVINE APARTMENT COMMUNITIES, INC. - 1994 REVISED
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,468
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 800,775
<DEPRECIATION> 169,039
<TOTAL-ASSETS> 757,240
<CURRENT-LIABILITIES> 0
<BONDS> 540,689
0
0
<COMMON> 118
<OTHER-SE> 81,635
<TOTAL-LIABILITY-AND-EQUITY> 757,240
<SALES> 0
<TOTAL-REVENUES> 130,236
<CGS> 0
<TOTAL-COSTS> 69,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,827
<INCOME-PRETAX> 12,279
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,273
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0000912084
<NAME>IRVINE APARTMENT COMMUNITIES, INC. - 1993 REVISED
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> DEC-31-1993
<CASH> 27,916
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 791,753
<DEPRECIATION> 148,052
<TOTAL-ASSETS> 740,120
<CURRENT-LIABILITIES> 0
<BONDS> 513,943
0
0
<COMMON> 118
<OTHER-SE> 87,460
<TOTAL-LIABILITY-AND-EQUITY> 740,120
<SALES> 0
<TOTAL-REVENUES> 124,820
<CGS> 0
<TOTAL-COSTS> 68,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,248
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<NAME>IRVINE APARTMENT COMMUNITIES, L.P. - 1997
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<S> <C>
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0
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<NAME>IRVINE APARTMENT COMMUNITIES, L.P. - 1996
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0
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<NAME>IRVINE APARTMENT COMMUNITIES, L.P. - 1995
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<S> <C>
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0
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<NAME>IRVINE APARTMENT COMMUNITIES, L.P. - 1994
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<S> <C>
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0
0
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<CIK>0001038358
<NAME>IRVINE APARTMENT COMMUNITIES, L.P. - 1993
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<S> <C>
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0
0
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<INCOME-PRETAX> (387)
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<EPS-PRIMARY> 0.01
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